A Deal You Can't Refuse

By now I'm sure you have all seen the news on the "sale" of Bear Stearns. I put the term sale in quotation marks because sales are usually voluntary transactions entered into by two willing parties. From what I have been reading, this deal was what Don Corleone in The Godfather would have called "a deal you can't refuse." You could hear the howls from Wall Street all the way out here on the Monterey Peninsula.

According to the Wall Street Journal, JP Morgan magnanimously agreed to buy Bear Stearns for $2 per share. When I first read that report I thought surely the article had it wrong . Didn't they really mean $20? I was wrong. Although the price of Bear Stearns closed at $30 per share on Friday, JP Morgan smelled blood in the water and, with the help of the Fed's muscle, the deal was closed at $2 per share.

JP Morgan comes away from this transaction with two crown jewels, each worth far more than the $236 million price tag they paid. The first is Bear Stearns' prime brokerage business which is a leading provider of services to hedge funds. The second is Bear Stearns' headquarters building in mid-town Manhattan. According to estimates published on Bloomberg, this 47 story building built in 2000 is worth between $1 and 1.5 billion.

I believe this is a very positive development (unless you are a shareholder in Bear Stearns.) It is the clearest sign yet that the Fed is getting serious about pushing Wall Street to clean house. You can bet that discussions in board rooms up and down Wall Street have taken on a renewed sense of urgency. Nobody wants to suffer the fate of Bear Stearns.