Monday, March 17, 2008

Monday Morning Meltdown

Bear Stearns is now a name relegated to history with their collapse and acquisition by JP Morgan Chase. Over at Crooked Timber, John Quiggin tries to determine the company's tangible net worth:

It's just been announced that JP Morgan will buy Bear Stearns for $2 a share, implying a value of about $250 million. Given that the company headquarters is said to be worth about $1.2 billion, that gives the BS banking business a value of negative $1 billion. And that's only after the Fed agreed to take on $30 billion worth of toxic waste from the BS portfolio, politely described as "less-liquid assets."

So, the company may have had a real net worth of negative $31 billion. With $30 billion of that under control of the fed, JP Morgan was able to take on another $1 billion in liabilities and collateralize that investment with Manhattan real estate.

Will this be the model that the government envisions for bailing out troubled Wall Street firms? Bear Stearns will not be the last name to vanish.

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