JPMorgan to Buy Bear for $2 a Share Sunday March 16, 10:31 pm ET
By Joe Bel Bruno and Madlen Read, AP Business Writers
JPMorgan Says It Will Buy Ailing Bear Stearns for Fire-Sale $2 a Share, or
$236.2 Million
http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html
NEW YORK (AP) -- Just four days after Bear Stearns Chief Executive Alan
Schwartz assured Wall
Street that his company was not in trouble, he was forced on Sunday to
sell the investment bank
to competitor JPMorgan Chase for a bargain-basement price of $2 a share,
or $236.2 million.
The stunning last-minute buyout was aimed at averting a Bear Stearns
bankruptcy and a spreading
crisis of confidence in the global financial system sparked by the
collapse in the subprime
mortgage market. Bear Stearns was the most exposed to risky bets on the
loans; it is now the
first major bank to be undone by that market's collapse.
The Federal Reserve and the U.S. government swiftly approved the all-stock
buyout, showing the
urgency of completing the deal before world markets opened. The Fed also
essentially made the
takeover risk-free by saying it would guarantee up to $30 billion of the
troubled mortgage and
other assets that got the nation's fifth-largest investment bank into
trouble.
"This is going to go down in very historic terms," said Peter Dunay, chief
investment strategist
for New York-based Meridian Equity Partners. "This is about credit being
overextended, and how
bad it is for major financial institutions and for individuals. This is
why we're probably
heading into a recession."
JPMorgan Chase & Co. said it will guarantee all business -- such as
trading and investment
banking -- until Bear Stearns' shareholders approve the deal, which is
expected to be completed
during the second quarter. The acquisition includes Bear Stearns' midtown
Manhattan headquarters.
JPMorgan Chief Financial Officer Michael Cavanagh did not say what would
happen to Bear Stearns'
14,000 employees worldwide or whether the 85-year-old Bear Stearns name
would live on after
surviving the Great Depression, two World Wars and a slew of recessions.
He told analysts and
investors on a conference call that JPMorgan was most interested in buying
Bear Stearns' prime
brokerage business, which completes trades for big investors such as hedge
funds.
At almost the same time as the deal for control of Bear Stearns was
announced, the Federal
Reserve said it approved a cut in its lending rate to banks to 3.25
percent from 3.50 percent
and created another lending facility for big investment banks. The central
bank's official
meeting is on Tuesday. Before the emergency move to lower the discount
rate, which is the rate
at which banks lend each other money, the Fed was widely expected to again
cut its headline rate
by as much as a full point to 2 percent.
"Having taking Bear Stearns out of the problem category, and the strong
action by the Federal
Reserve, we would anticipate the market will behave quite differently on
Monday than it was
Thursday or Friday," Cavanagh said.
Some analysts expected it to be a brutal day for global stocks,
nevertheless. Shortly after the
news broke, Japan's benchmark Nikkei stock index plunged more than 3
percent in morning trading.
A bankruptcy protection filing of Bear Stearns could have heightened
anxiety in world financial
markets amid a deepening credit crunch. So far, global banks have written
down some $200 billion
worth of securities slammed amid the credit crisis -- more write-downs
could come. Last week, a
bond fund controlled by private equity firm Carlyle Group faltered near
collapse because of
investments linked to mortgage-backed securities.
JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of
what the investment bank
was worth just 16 days ago. It marked a 93.3 percent discount to Bear
Stearns' market
capitalization as of Friday, and roughly a 98.8 percent discount to its
book value as of Feb. 29.
"The past week has been an incredibly difficult time for Bear Stearns,"
Schwartz said in a
statement. "This represents the best outcome for all of our constituencies
based upon the
current cir***stances."
Wall Street analysts say the bid to rescue Bear Stearns was more than just
saving one of the
world's largest investments banks -- it was a prop for the U.S. economy
and the global financial
system. An outright failure would cause huge losses for banks, hedge funds
and other investors
to which Bear Stearns is connected.
After days of denials that it had liquidity problems, Bear was forced into
a JPMorgan-led,
government-backed bailout on Friday. The arrangement, the first of its
kind since the 1930s,
resulted in Bear getting a 28-day loan from JPMorgan with the government's
guarantee that
JPMorgan would not suffer any losses on the deal.
This is not the first time Bear Stearns has earned a place in Wall Street
history. A decade ago,
Bear Stearns refused to help bail out a hedge fund that was deemed "too
big to fail." On Friday,
the tables had turned, with the now-struggling investment bank in need of
the same kind of aid.
Bear Stearns was founded in 1923 and in recent years was best known for
its aggressive investing
in mortgage-backed securities -- and what was once a cash cow turned into
the investment bank's
undoing.
In June, two Bear-managed hedge funds worth billions of dollars collapsed.
The funds were
heavily invested in securities backed by subprime mortgages. Until that
point, subprime
mortgage-backed securities were immensely popular with investors because
of their profitability.
The funds' demise and subsequent problems in the credit markets called
into question Bear
Stearns' ability to manage its own risk and the leader****p ability of
then-Chief Executive James
Cayne. Critics of the company said Cayne spent too much time away from the
office last year
playing golf and bridge as the problems unfolded.
Cayne is the same executive who refused to let Bear Stearns provide
sup****t as part of a Federal
Reserve-led plan to rescue Long-Term Capital Management in 1998. His
reticence was said to
deeply anger some of his fellow Wall Street CEOs, and the episode came up
every time Bear was
re****ted to be in trouble in recent months.
Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg
joined Bear Stearns
as a clerk, working his way up through the ranks to eventually take over
as CEO in 1978.
Greenberg was known for his irreverent style, and his regular memos to
employees were turned
into a book called "Memos from the Chairman."
Before Greenberg's ascendancy to CEO, Bear Stearns began to expand from
its New York roots
throughout the 1950s and 1960s, opening international offices and
expanding its U.S. operations.
AP Business Writers Jeannine Aversa in Wa****ngton and Stephen Bernard
contributed to this story.
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Finally, the campaigns of 1793 and 1794 set Clausewitz on the path of
recognizing war as a
political phenomenon. Wars, as everyone knew, were fought for a purpose
that was political,
or at least always had political consequences. Not as readily apparent
was the implication
that followed. If war was meant to achieve a political purpose, everything
that entered into
war — social and economic preparation, strategic planning, the conduct of
operations, the
use of violence on all levels — should be determined by this purpose, or
at least accord
with it. Even though soldiers had to acquire special expertise, and
function in what in some
respects was a separate world, it would be a denial of reality to allow
them to carry on
their bloody work undisturbed until an armistice brought their political
employer back into
the equation. Just as war and its institutions reflected their social
environment, so every
aspect of fighting should be suffused by its political impulse, whether
this impulse was
intense or moderate. The appropriate relation****p between politics and war
occupied
Clausewitz throughout his life, but even his earliest manuscripts and
letters show his
awareness of their interaction.
The ease with which this link — always acknowledged in the abstract —
can be forgotten in
specific cases, and Clausewitz’s insistence that it must never be
overlooked, are
illustrated by his polite rejection toward the end of his life of a
strategic problem set by
the chief of the Prussian General Staff, in which every military detail of
the opposing
sides was spelled out, but no mention made of their political purpose. To
a friend who had
sent him the problem for comment, Clausewitz replied that it was not
possible to draft a
sensible plan of operations without indicating the political condition of
the states
involved, and their relation****p to each other: ‘War is not an independent
phenomenon, but
the continuation of politics by different means. Consequently, the main
lines of every major
strategic plan are largely political in nature, and their political
character increases the
more the plan applies to the entire campaign and to the whole state. A war
plan results
directly from the political conditions of the two warring states, as well
as from their
relations to third powers. A plan of campaign results from the war plan,
and frequently - if
there is only one theater of operations - may even be identical with it.
But the political
element even enters the separate components of a campaign; rarely will it
be without
influence on such major episodes of warfare as a battle, etc. According to
this point of
view, there can be no question of a purely military evaluation of a great
strategic issue,
nor of a purely military scheme to solve it.’
Everyman’s Library, 1993 ISBN: 0679420436 On war /by Clausewitz, Carl
von, 1780-1831.
Knopf, 1993. From the introduction by Peter Paret, Pg7
_____________________________________________________________________
The U-2 is a jet-powered reconnaissance aircraft specially designed to fly
at high altitudes
(i.e., above 70,000 ft [21 km]). It was used during the late 1950s to
overfly the Soviet
Union, China, the Middle East, and Cuba; flights over the Soviet Union,
the primary mission
for which the plane was designed, ended in 1960 when a U-2 flown by CIA
pilot Gary Powers
was shot down over the Soviet Union. This event was a major political
embarrassment for the U.S.
http://www.espionageinfo.com/Te-Uk/U-2-Spy-Plane.html
Soviet Prime Minister Khrushchev's reaction to the overflights which
were discovered
just before a summit conference in Paris with President Eisenhower: "It
was as though the
Americans had deliberately tried to place a time bomb under the meeting" .
. ."How could
they count on us to give them a helping hand if we allowed ourselves to be
spat upon without
so much as a murmur of protest?" The only solution was to demand a formal
public apology
from Eisenhower and a guarantee that no more overflights would take place
. . .
But the apology Khrushchev was looking for would not come. Despite
having trespassed
on the Soviet Union for the past four years with scores of flights by both
U-2's and heavy
bombers, the old general still could not say the words, it was just not in
him. . . A time
bomb had exploded, prematurely ending the summit conference. . .
Back in Wa****ngton, the mood was glum. The Senate Foreign Relations
Committee was
leaning toward holding a closed door investigation into the U-2 incident .
. . In public,
Eisenhower maintained a brave face. He "heartily approved" of the
congressional probe and
would 'of course fully cooperate,' he quickly told anyone who asked. But
in private he was
very troubled. For weeks he had tried to head off the investigation. His
major concern was
that his own personal involvement in the overflights would surface,
especially the May Day
disaster. Equally, he was very worried that details of the dangerous
bomber overflights
would leak out. The massed overflight may in fact, have been one of the
most dangerous
actions ever approved by a president.
pg. 51-55 ~Body of Secrets; Anatomy of the Ultra Secret National Security
Agency
James Bamford
----------------------------------------------------------------------
"Let me give you a word of the philosophy of reform. The whole history of
the progress of
human liberty shows that all concessions yet made to her august claims,
have been born of
earnest struggle. The conflict has been exciting, agitating,
all-absorbing, and for the time
being, putting all other tumults to silence. It must do this or it does
nothing. If there is
no struggle there is no progress. Those who profess to favor freedom and
yet depreciate
agitation, are men who want crops without plowing up the ground, they want
rain without
thunder and lightening. They want the ocean without the awful roar of its
many waters."
"This struggle may be a moral one, or it may be a physical one, and it may
be both moral and
physical, but it must be a struggle. Power concedes nothing without a
demand. It never did and
it never will. Find out just what any people will quietly submit to and
you have found out the
exact measure of injustice and wrong which will be imposed upon them, and
these will continue
till they are resisted with either words or blows, or with both. The
limits of tyrants are
prescribed by the endurance of those whom they oppress. In the light of
these ideas, Negroes
will be hunted at the North, and held and flogged at the South so long as
they submit to those
devilish outrages, and make no resistance, either moral or physical. Men
may not get all they
pay for in this world; but they must certainly pay for all they get. If we
ever get free from
the oppressions and wrongs heaped upon us, we must pay for their removal.
We must do this by
labor, by suffering, by sacrifice, and if needs be, by our lives and the
lives of others."
http://www.buildingequality.us/Quotes/Frederick_Douglass.htm
Frederick Douglass, 1857
- - - - - -> More political discussion continues at
http://www.politicsusaweb.com/
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