Sunday, March 16, 2008


Bear Stearns 2 in $2.

Well, it didn't take long for the other shoe to drop.

The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.

Effective immediately, J.P. Morgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. The deal isn't subject to any conditions, except shareholder approval. It is expected to close before the end of the second quarter. [Emphasis added.]

The most important thing for the Fed right now is that a bunch of financial dark matter doesn't get dumped on the markets causing further problems for banks. Implicit is the Fed's promise to keep J.P. Morgan liquid in the midsts of this credit squeeze. And so the Fed rides to the rescue with a big dollop of rate cuts. Weekend rate cuts. Smells like a panic to me. Well not as bad as you might think.

As of 10:30 pm Chicago time,

Dow Futures: -201
Euro Futures: +190 to 157.86
Gold Futures: +28.7 to 1028.5.

The Fed Funds rate at 3.25% leaves them with more cutting room but not much more. Panics tend to be fairly quick affairs so we will see what develops this week. At least Easy Al has it right this time.



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