Filed under: Deals, Management, Rants and raves, JPMorgan Chase (JPM), Serious Money, Headline news, Bear Stearns Cos (BSC)
For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad bet the farm on investments they didn’t fully understand. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.
Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?
It seems to me that the reported $2 per share buy price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to purchase the brand name last year, never mind the whole company. What we are witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.
I also do not understand why management was so slow to act over the course of the last year as the picture became more clear as to how bad things were getting in the credit markets. Perhaps they were in denial. Do we give them the benefit of the doubt as to why they kept telling the market they did not have a liquidity problem until last Friday morning when we all woke up to hear they did? Did they actually believe all the trash they were telling us?
It looks like the strong will become even stronger after the market shake-out —or even more appropriately, the market shake-down. We should not forget that the assets that Chase is buying are impaired now, but likely will be worth some number of billions of dollars more as the credit and liquidity problems work themselves out over the next few years.
Although this might make JP Morgan Chase look like a good purchase right now, since the stock is down and there is so much possible potential, we all have thought this about other institutions, including Bear Stearns, only to watch things fall apart as we’re taken by surprise, as new disclosures of mismanagement and untimely decisions are made public.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I’m a shareholder in BSC.
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