From what I've gathered, Bear had about $10 Billion in pure 'book value' assets...problem is that they borrowed 40 times this amount from their creditors....to eventually hold about $400 Billion worth of assets....1/3 of these $400 Billion in assets were mortgage-backed assets aka JUNK that they became stuck holding and unable to offload when credit markets started tightening up.
Congrats Bear, you're 85 years as a financial institution are OVER....congrats to JPMorgan (JPM) who actually made out on the deal by inheriting NO RISK and were basically awarded the good Bear assets ('prime brokerage' business) by the Federal Reserve at a CHEAP price ($230 mil or so).
Because of reckless irresponsibility demonstrated by Bear, the market is now stuck wondering what other institutions are at risk because they stupidly levered at 30-40X their own assets...most people are betting Lehman's in trouble as well (down 20% today) but I'm hoping its not near the same extent as STUPID Bear.
Also, for the time being, I am now avoiding ALL 'wounded' U.S. financials besides JP Morgan and Goldman Saachs (direct beneficiaries of the Bear deal...Goldman has benefited from gaining marketshare). The Bear Sterns debacle totally changes the stock valuation metrics investors use to determine the value of banks and brokers. Book Value used to be a measurement that had Wall Street credibility....but not anymore....Bear Stern's perceived book value was $80/share prior to the JP Morgan bid for $2/share. Countrywide Financial has a 'book value' of $22/share...but now that means absolutely NOTHING. In my opinion it doesn't make sense to buy the U.S. financials until there's a new consensus on how to TRULY value their assets....because until then you have no idea what they are really worth.
Full Disclosure: I currently own shares of GS.
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