Free exchange

What is Bear worth?

A lot, apparently

ONE of the most common talking points heard yesterday was that Bear Stearns had been sold for a mere $240 million while the company's headquarters alone has an estimated worth of $1.2 billion. In other words, it sure seems like whatever Bear has on its books is worth less than nothing, such that the company had to give JP Morgan a billion dollars just to get a sale.

Is that right, though? Felix Salmon, and some other financial writers, suggests a different justification for the negative valuation, namely, that there were no other buyers out there. Bear, essentially, was a price taker, and JP Morgan gave the bank only what it needed to. From Wall Street's perspective the one-bidder alternative is the better one, by far. If Bear were only worth $2 per share because its assets were garbage, then odds are that other banks out there should be trading a lot lower, as well. If JP Morgan were just getting a steal, then maybe the other banks, Lehman for instance, aren't lying when they say they're in decent shape.

A piece of evidence in favour of the one-bidder hypothesis comes from Alea. While markets as whole are down today, including the financial sector, JP Morgan is trading up. Substantially. About 9 percent at the moment. And Alea's jck points out that that comes out to roughly $11 billion, or a bit more than Bear's professed book value. Perhaps some of those Bear assets actually were worth more than the paper they're printed on.

Just goes to show that the best thing to be during a crash is a buyer.

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