JPM + Bear = A Big Deal with Few Winners

Last Updated Mar 18, 2008 12:05 PM EDT

You get the sense that regulators were working all weekend long alongside hundreds of workers at JPMorgan and Bear Stearns to hammer out what by any standards is a historic takeover. The idea was to contain the equivalent of a toxic spill in world financial markets. So why doesn't anyone seem relieved?

We'll never know just how bad things might have gotten if this takeover hadn't happened so quickly. And that is the idea. But the collateral damage is significant and there are few, if any, winners.

  • JPMorgan co-CEO, Bill Winters, said the deal was arranged to avoid "any kind of a fire sale of assets." But the price was a fire sale of Bear at $2 a share. Some shareholders are griping a bankruptcy would have been better. Those shareholders include Bear Stearns' workers: James Cayne, the ex-CEO who helmed the firm into this mess, owns a stake worth $13.4 million, down from $1.2 billion last year. Scores of others will be laid off in the worst hiring market for Wall Street in their careers.
  • JPMorgan says it will see $1 billion a year added to its bottom line. It also said the whole deal will cost $6 billion in litigation, de-leveraging of assets, accounting conforming, severance and consolidating technology. The $2 a share price looks good, but is so low it raises questions about what problems it's buying along with Bear.
  • The Federal Reserve set up a lending facility of up to $30 billion to manage illiquid assets. But the real cost for the U.S. government is likely to be at once more abstract but much deeper. Foreign investors are avoiding U.S. government notes, a trend that could drive up interest rates and punish the dollar further. Every move the Fed or the Treasury make to stabilize the markets seems to paradoxically weaken their image abroad.
  • The markets may not remain stable for long. The rumors of Bear Stearns' liquidity are gone, but they've moved on to Lehman Brothers. It's just hearsay, of course, but that's deadly in this market. One Singapore bank instructed traders not to handle some trades with Lehman. Lehman's CEO is assuring everyone it has enough money. Problem is, that didn't help Bear when its CEO did the same.
  • Kevin Kelleher

    Kevin Kelleher writes a regular stock column at and is a contributor to Wired, Popular Science, and GigaOm. He has previously worked as a reporter and editor at Bloomberg News, Wired News, and The Industry Standard.