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Bear Stearns: The Reality Of The JP Morgan Deal

Bear Stearns is moving up again, up 58 percent to $7.62. There is no way to explain this move up other than there are some people who believe that the terms of the deal will be improved or there will be a white knight to make a counter bid.

Many believe that a large block of shareholders will vote against the deal, including Bear employees, who own 30 percent of the stock, and Joe Lewis, who has said he will vote against the deal.

As much as we might want to think it will be worth more, the reality is difficult to change. Assuming JP Morgan does not improve the terms of the deal (why should they?), the company will go into bankruptcy.

At that point, assets will be sold. What assets? The firm has a building, but it appears JP Morgan owns it no matter what happens.

What else? Prime brokerage? It appears to be gone. Investment banking? In a bankruptcy? I doubt it. The brokerage business and the retail sales force? Wouldn't most of them leave if they could?

What about the assets? We don't know, but there would certainly be a fire sale that would drive down prices even more. There are rumors of a white knight, but how many are there who could do this deal and go against the wishes of everyone else, including the Fed?

I am sure you will hear people floating valuations that are much higher than $2 in the coming days. They may have a point, but getting to that reality will not be easy, unless JP Morgan suddenly, magnanimously changes the terms.


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