JP Morgan Buys Bear Sterns

From Reuters:

Minutes earlier, JPMorgan Chase & Co had said it would buy Bear Stearns for a rock-bottom price of $2 a share, valuing the U.S. investment bank at the centre of a widening global credit crisis at about $236 million.

Whether that's a fair valuation or not depends upon your view of markets. Being something of a fundamentalist,  I say it's a fair price, as it's the price that they could get in that market on that day. Willing sellers and willing buyers and all that.

The truly instructuve thing though is what this says about any likely valuation of Northern Rock shares after the nationalisation. The two scenarios are very similar. Both simply ran out of cash and were thus bust. 

So Bear Sterns closed somewhere in the $30 + range on Friday? No matter, what it was worth is that $2 they got. Northern Rock closed at 90p + before nationalisation? The 5p that some have indicated will be the assessor's price sounds about right really. 

Those arguing for £4 + on the basis of book value, or equity remaining, sorry, but that simply won't wash. As we might remember, niether Branson nor Luqman Arnold were willing to offer anything like that. Rock simply wasn't worth that on that market on that day, sans the guarantees.

Bad news for the shareholders, to be sure. But probably good news for us taxpayers: assuming that Darling and the others hold their nerve that is.

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