From a market capitalization of over $10.8 billion last month ($20.2 billion last year), to $3.6 billion on Friday, to an implied $240 million today, roughly $10.5 billion in Bear Stearns’ shareholder equity has evaporated over the past six weeks. And with a third of the bank owned by its employees, employee wealth has been reduced by at least $3.5b during the same period (dropping over $1 billion since Friday alone)*.
From a plugged-in reader who was listening in on the Bear Stearns (BSC) JPMorgan Chase (JPM) conference call earlier this evening:
In effect, JPM is “writing down” the value of nearly $33B in BSC mortgage-related assets to approximately $13B (after giving effect to the $20B of Fed backstop related specifically to these assets). Yes, the value of the mortgage assets on BSC’s books, of which only $2B is estimated to be subprime specifically, has been marked to market at a greater than 50% discount to the market value as of 2/29/08. Now, clearly JPM was able to leverage the imminent liquidation of BSC to drive the mark to market value of these assets below the JPM-perceived value of the assets (or they wouldn’t have done the deal), but why aren’t the rest of the banks going to be forced to further write down the value of their mortgage-backed assets by some amount greater than what’s already been done (since the true mark to market value of these assets now lies somewhere between par and more than 50% less than par)? And what does this mean to the value of the average household balance sheet, where the value of the home is a large part, if not a majority, of the “book value” of the average American household?
And then of course there’s the fact that the Fed is operating in complete crisis mode. Don’t think these things will affect all levels of our lilttle local real estate market way out here (from credit to rates to values)? You might want to think again.
*Note: Updated to include shares beyond those in the employee-incentive plan.
∙ JPMorgan Chase to Buy Bear Stearns for $240 Million [Bloomberg]
∙ Fed Lowers Discount Rate, Expands Lending to Prevent Meltdown [Bloomberg]