Subprime crisis that sprawled in United States of America last year spread rapidly across the world and triggered the collapse of world’s economic juggernauts. Actually, the crisis is a chain of events geared by the same cause, but during this year, there have been major events that exerted a range of effects on subsequent evolution of financial markets, that Wall-Street reviewed together with Tony Romani, the investment banker at Freeman&Co.
March 16 – JP Morgan Chase acquires rival investment bank Bear Stearns
JPMorgan Chase & Co said on March 16 it would acquire rival Bear Stearns, paying 2 US dollars per share or 236 million US dollars, a bargain-basement price for the American investment bank trapped by financial crisis.
The takeover, which was fully approved by Federal Reserve, American central bank system and by Ministry of Finance, highlights the risks that American banks and financial companies are dealing with in the midst of a deepening subprime crisis.
The bid - which marks an over 90% discount to Bear Stearns’ market capitalization as of Friday – raises questions on the real value of Wall-Street banks.
Few minutes after the announcement, the Federal Reserve said it would cut the lending rate to banks, however this decision failed to calm investors.
JP Morgan bought Bear Stearns with guarantees that Fed will bear losses of up to 30 billion dollars. It was the first move of long chain of events to come. Although the initial price was 2 dollars per share, the deal was closed at a price 10 dollars higher, explained Tony Romani to Wall-Street.
“Even so, that price marked a 90% discount to the 2007’s all-time high. Although the shareholders did not agree at that time, the fact that Bear Stearns was the first fatality of the crisis was a major advantage. If Lehman Brothers was the first casualty and Bear Stearns the
