Fed steps in to rescue BS after it runs out of money. Due to it precarious position, its prime brokerage clients leave it. Over the weekend, JPMorgan, with significant backing from the federal reserve, agrees to buy bear stearns for only $2 a share - barely 1% of where the share price was five months earlier.
Bear Stearns reported a loss of $859 million after write-downs of $1.9 billion in the fourth quarter of FY2007. This was the first quarterly loss in the firm's history.
On Monday, November 19, a Goldman Sachs analyst lowered his target price for Bear's stock to $106 from $118. Bear's stock price fell 5% by the end of the day.
On Wednesday, November 14, Bear Stearns announced that it would write-down $1.2 billion worth of its holdings tied to subprime mortgages. Shares rose initially, since this amount was less than originally expected. The following day, however, Standard and Poor's cut its rating on Bear's long-term debt to A from its previous rating of A+, pushing shares of Bear's stock downward.
Speculation about the possibility of outside funding sent Bear Stearns' stock prices soaring. A inflow of capital from an outside source would ease concerns about continued adverse exposure to fallout from the subprime collapse and the contracting debt market.
The Standard and Poor's credit rating agency downgraded its outlook on debt issued by Bear Stearns from Stable to Negative. As a result, the cost of insuring Bear's bonds increased significantly, as much as 16 basis points in one day.
On July 18, Bear announced that one of its hedge funds was down 91% for the year, while another was wiped out completely as a result of the subprime bust. On July 20, shareholders of these funds announced that they were planning to file a lawsuit against Bear claiming mismanagement and misrepresenting figures. Finally, on July 26, Bear seized the assets of one fund after losing $300mm of a $1.6bn loan Bear gave it earlier in the month.
From June 18th until June 26th, Bear's stock fell around 7% on concerns about its exposure to the subprime lending bust. During this time, Bear announced that it would have to bail out two of its hedge funds (to the tune of $3.2 bn), Merrill Lynch auctioned off Bear securities to recoup its investment in these funds, and BSC withdrew the IPO of Everquest Financial.
Bear Stearns funds own a two-thirds stake in Everquest Financial Ltd., a firm that invests in debt backed by sup-prime mortgages. Everquest Financial has announced an initial public offering on May 9th 2007, meant to transfer risk to other investors.
Universal Health Services comes under scrutiny for alleged Medicare fraud and is down graded to “under-perform.” Bear Stearns analysts suggest investors unload their shares in UHS.
Bear Stearns announces completion in the acquisition of ECC Capital Corporation’s sub-prime mortgage banking platform for $26 million.
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