Jpmc

• How was JPMC the firm strong enough for the government to turn to acquire Bear?

-First of all, JPMC is Bear’s cleaning agent and it more familiar with the Bear’s financial structure and assets. Second, at the end of 2007, JPMC had 741 billion deposits and it take almost 50% in its financial liabilities. It is very stable for a company. Also, JPMC acquire WAMU in early 2008, it shows that the company has a strong balance sheet. But JPMC still hurt by the mortgage market and its allowance loan loss in the mortgage business, compared to Q1 2007, increased by 56% at Q1 2008. And that’s one of the reasons why JPMC use such a low price to acquire Bear. Without the 290 million from Fed, I think JPMC will not take this deal to clean Bear’s debt.

• What price would you pay for Bear’s assets at the time it was acquired by JPMC?

-At final 10Q in March, Bear has 387 billion liabilities and only have 12 billion in equity. This 32x multiple structure just like a bomb and need a lot of capital to fulfill this black hole. But according to the public information, Bear Stern still has an 11.8 billion break-up-value at March 14. Having the 290 billion loans from Fed, I will use about $11 per share to acquire Bear.

• What could Bear have done differently to avoid its fate (a) in the early 2000? (b) During the summer of 2007? (c) During the week of March 10, 2008?

(a) In the early 2000?

First, Bear should participate the LTCM’s Fed-couraged bailout. The reputation of the company got hurt after them despite being the clearing agent of LTCM. Second, after the lowest interest on 2001, more investors want to seek the higher profit products. And that’s the motivation for launch ABC and CDOs. For Bear Stern, they issued the High-Grade Structured Credit Strategies Fund in 2003, and it filed for bankrupt in 2007. This hedge fund should invest less proportion in illiquid CDOs or should invest more derivative products to cut down the loss.

(b)...