In an unusual press release, issued Sunday, March 16th, the Federal Reserve has announced that they are implementing what can be considered "emergency" actions in order to make funds available to JPMorgan Chase which will serve as a conduit for funds to Bear Stearns. Thus leading me to believe that the Bear Stearns situation is extremely serious and may have implications for the broader market when it opens on Monday.
It is believed that third-parties (counter-parties) are withdrawing funds from custody accounts held in their favor and placing their continuing securities execution business elsewhere -- thus precipitating a loss of confidence in Bear Stearns as a going concern. It seems that these counter-parties would rather cease doing business with Bear Stearns than explain to their own shareholders and partners why they were ignoring market rumors and placing their capital at an undue risk.
Whoops ... Had to cancel Monday's order -- I also believe that JPMorgan Chase may be considering the acquisition of an otherwise profitable Bear Stearns and I have placed a small order for JPM for Monday's opening. <--- inoperative, who knew you needed to work on Sunday?
According to Monday's Wall Street Journal...
'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."
"Government regulators, including the Federal Reserve and the Office of the Comptroller of the Currency, have given their blessing to the transaction."
What a deal... in an no-lose scenario where the working capital may be supplied by the Fed, JPMorgan Chase acquires a profitable, on-going business for approximately $2/share in "paper" transaction.
The lowering of the spread on the primary rate may signal a potential cut of 75-basis points or more in the Federal Funds Target Rate -- with a corresponding cut in the Discount rate in order to restore the previous 50-basis points margin.
As with everything FED, they will take action as conditions warrant.
In their own words...
| March 16, 2008 | Federal Reserve |
The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.
First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.
Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.
The Board also approved the financing arrangement announced by JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
| March 14, 2008 | Bear Sterns |
NEW YORK – New York – March 14, 2008 – The Bear Stearns Companies Inc. announced today it reached an agreement with JPMorgan Chase & Co. (JPMC) to provide a secured loan facility for an initial period of up to 28 days allowing Bear Stearns to access liquidity as needed. Bear Stearns also announced that it is talking with JPMorgan Chase & Co., regarding permanent financing or other alternatives.
Alan Schwartz, president and chief executive officer of The Bear Stearns Companies Inc., said, "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."
The company can make no assurance that any strategic alternatives will be successfully completed.
NEW YORK – New York – March 14, 2008 – The Bear Stearns Companies Inc. (NYSE: BSC) plans to announce its first quarter 2008 financial results on Monday, March 17, 2008, in a press release that will be issued after the close of the New York Stock Exchange. The press release will also be available on the firm's Web site at http://www.bearstearns.com. The call was previously scheduled for Thursday, March 20, 2008.
| March 11, 2008 | Federal Reserve |
Release Date: March 11, 2008 - Federal Reserve Actions
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.
| March 10, 2008 | Bear Stearns |
NEW YORK – New York – March 10, 2008 — The Bear Stearns Companies Inc. today denied market rumors regarding the firm's liquidity. The company stated that there is absolutely no truth to the rumors of liquidity problems that circulated today in the market.
Alan Schwartz, President and CEO of The Bear Stearns Companies Inc., said, "Bear Stearns' balance sheet, liquidity and capital remain strong."
Bear Stearns will announce its first quarter 2008 financial results on Thursday, March 20, 2008, in a press release that will be issued prior to the opening of the New York Stock Exchange. The press release will also be available on the firm’s Web site at http://www.bearstearns.com.
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