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The Epic Battle for Bear Stearns’ Soul, and Other Day-Three Stories


Photo Illustration: Everett Bogue; Photos: Getty Images, Corbis (Cayne), Landov (Schwartz)

It’s been two days since Bear Stearns was sold in a fire sale to JPMorgan, and things are still messy and emotional. Whose fault was all of this, and if it’s no one’s fault, whom can we blame? What will happen next? And what will the impact be, not just on Wall Street, but on the little people? Several stories in the papers today shed light on these questions, even as they raised more questions. Below, a handy cheat sheet to keep you current:

• Yesterday, Bear’s stock went up, and with it, the price that JPMorgan agreed to pay to take over the bank went up to $2.34 a share from $2. Why the jump? Some are betting that because JPMorgan’s offer is so low, another bidder might emerge. But that’s unlikely, since JPMorgan has got this thing locked down: They’ve guaranteed its operations for a year, hold a $1.1 billion option on the firm’s headquarters, and have the backing of the Fed and the Treasury Department. So what some people have postulated is that bondholders are buying up Bear Stearns shares for one of two reasons: To help the deal go through (in which case they would have effectively bought JPMorgan shares on the cheap) or to hedge against it, since even if the deal falls through, the stock could rise.

• Most longtime shareholders, in the meantime, are hoping that the deal won’t go through. They’re pissed that their stock has plummeted — Joseph C. Lewis, who sunk half his fortune into Stearns stock, called the offer “derisory” — and are threatening to vote against it so they can wait for a higher price (or search for another bidder, as the Post says Jimmy Cayne and Lewis are doing). “If credit markets recover in the coming weeks and months, shareholders will have further ammunition to make the case that Bear Stearns is worth considerably more than the offer price,” says the Journal. But it’s a two-sided coin: If conditions do improve and they decide to go it alone, they could still go bankrupt, and this time, JPMorgan and the Fed might let them sink.

• Meanwhile, the SEC is investigating the statements made by Alan D. Schwartz last Wednesday that Bear was “comfortable” and far from having a liquidity crisis, mere days before they totally obviously were. Regulators “haven’t ruled out legal action over potentially misleading comments,” the AP reported yesterday. Also,
Bearamended their bylaws to cover legal expenses, which doesn’t look so good.

• New York City Comptroller William Thompson was also put off by Schwartz’s comments, and has announced the city plans to investigate whether the failure of Bear Stearns & Co. was due to mere bungling, or foul play. “I think a lot of people are going to be taking a look,” he told Reuters. “Was there some deception in there or was this just a miscalculation?”

• But lest we forget, the real victims here are the overachieving college students who had planned to intern at Bear this summer. If you listen closely, you can hear the cries of disappointed parents from all over Connecticut. For them, Mergers and Inquisitions has some advice. “Do NOT call Bear Stearns,” they say. “Do you really think that senior people at Bear are particularly concerned with the fate of incoming college students who haven’t had real jobs before? Not to sound harsh, but there are people here who have lost their life savings over this incident. No matter how screwed you think you are, it’s not that bad because you haven’t even started your career yet and you don’t even have a savings to lose.”

The Epic Battle for Bear Stearns’ Soul, and Other Day-Three Stories