I believe in the adage that if something is too good to be true, it probably isn't. Could JP Morgan really buy Bear Sterns for $2 a share or something less than $300 million dollars? Give me a break. In their conference call JP executives talked about how satisfied they were with Bears risk management and they saw they business being accretive to income and earnings. On top of all that the fear risk of Bear owns is being covered by the Fed. What a deal, but its a deal I don't expect to go through.
Shareholders are already beginning to smell a rat or an opportunity. They are not going to be inclined to giving away their investment for something like 2 cents on the dollar for many of them, so you are already hearing noise about the shareholders about turning down the deal. Heck, what do they to lose by doing so?
What this whole deal really amounts to is government sponsored receivership. Nobody wanted Bear to go into real bankruptcy. Psychologically that would be a killer to the market and plus they would have to start dumping assets. This moves prevents that and gives time for the market to stablilize and for confidence in Bear to be restored. Once that happens, new buyers for Bear will appear, or JPM will have to raise their bid dramatically, or perhaps Bear will even be able to avoid a takeover all together. The last scenario is not likely, as somehow, JPM needs to be rewarded for doing the Fed's dirty work.
I don't really have a strong opinion for or against the move, I just want this credit crisis to get over with so we can get back to a regular market. If this moves does the trick, it could be seen a a brilliant stroke by Bernake and Paulson. Time will tell.
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