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April 01, 2008 at 08:00 PM
The most dramatic event in the wild and woolly month of March 2008 was the shocking, Fed-inspired bail-out of Bear Stearns by JPMorgan. If one believed the press clippings, Bear went from being a perfectly fine firm to one that needed emergency funding to stay afloat in a mere four days. The end result was an 80-year old institution that was bought by one of the best-run banks on the Street for a mere $2 a share.
After the deal was announced on the 24th, Bear Stock immediately dropped to $2, but bounced thereafter, eventually settling around $5 per share–more than double the buyout price–prompting numerous observers to ponder who could be so bullish on a firm that had fallen so much in such a short period of time. (For a further update go here.)
Obviously, some were betting on a sweeter deal from JP, and they ended up being right on the money. But for a vast majority of Bear Stearns equity buyers, other economic incentives were at play.
