The Bear Turns
More on this later (when I get a minute to breath), but I think we can fairly say that New York Magazine’s recent fawning article notwithstanding, Jamie Dimon may have made a big mistake purchasing Bear at any price. Other than some potentially hard-to-unload midtown real estate, Bear’s real assets (as they say in marking brochures) are its people, and the firm is losing employees (and their client relationships) very rapidly. If you don’t have the people, you don’t have a business. And despite Dimon’s pleas that other banks not hire his staff, prime brokerage executives I’ve spoken to say they haven’t gotten any word from the tops of their firms prohibiting them from hiring out of Bear.
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3 comments to “The Bear Turns”
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28. March 2008 at :
Rushed decisions often have unfortunate consequences. Here there was only a couple of days for J.P. Morgan Chase to decide to buy Bear Sterns; the result may ultimately be that the American Public will be supporting that decision with tremendous amounts of money. As long as those bundled securities are based upon mortgages that are losing value in a declining real estate market no one is going to accept them as collateral.
Now, housing prices have risen 10-15% every year since about 2002, or basically 50-75% over what they were before. As of right now, those inflated prices have only fallen by 10.7% if we can trust what the government is saying, in view of the fact that they continually revise their figures. Prices will have to drop a lot more before the paper issued by Bear Stern’s and others can be valued.
Banks used to loan up to 80% of the assessed valuation of homes. That way they could always get their investment back in a foreclosure sale. When the prices drop enough so that the average buyer can actually put down 20% of the cost of a house things will balance out. Prices of houses are going to have to drop quite a low however to reach that point.
So as Bette Davis says in “All About Eve,” “Fasten your seat belts, its going to be a bumpy ride.”
28. March 2008 at :
Breathe Josh, relax. Here, have a Tam Tam…whoops, all out of those. How about some nice american cheese and triscuits instead?
2. April 2008 at :
Thanks for the sarcasm, Matt.
Update: A good friend believes it’s still a great deal, despite potentially costing $60-odd a share in the final analysis. His view: Dimon bought Bear’s holdings more than the firm. Those holdings include $300 billion+ in Treasuries and other good stuff. Maybe he’s correct. I haven’t examined the books.