Confidence virus widens on Wall Street Monday, March 17, 2008
With the Bear Stearns deal done at a 93 per cent discount to Friday’s closing price, you can only surmise that Bear Stearns management felt it had no alternate course of action available to it. Whilst the Fed engineered/forced the deal, one either has to conclude that JP Morgan were terrified in taking the deal on unless it was so cheap as to cover as yet undiscovered horrors, or they were being incredibly opportunistic and decided to play hard ball as the only buyer at the table.
Leaving aside the impact this has on perceptions of JP Morgan's own ability to absorb Bear Stearns [confidence virus - does this move make them stronger or weaker?], it will also exacerbate concerns about the balance sheets of other banks. If Bear Stearns had so little of value on its balance sheet, surely similar banks must be facing the same challenges?
Lehman Brothers announces first-quarter results this week, after warning 5% of its' workforce were to be laid off and arranging a three-year unsecured credit line of $2bn from 40 banks last Friday.