What a difference a year makes. Last year at this time of Bear Stearns' stock price high share of $ 150 per share and a market valuation of 20 billion €. Founding in 1923, in their opinion, one of the most venerable Wall Street investment houses.
Let's go back to 2005, Bear Stearns was the "most admired" securities of companies in Fortune's annual survey of selected stands remained until 2007. During this period many of the decisions that would lead to their eventualDestruction has been made. Began to break in mid-2007, the defense of Bear Stearns. The subprime problems began to explode. In essence, it was always clear to the financial sector that many subprime mortgages that had been in recent years have not been reimbursed.
A stagger to the Bear Stearns funds, the "High-Grade Structured Credit Fund" has begun. In a sign of things to come, when Merrill Lynch bought 850 million of securities forFunds that could, to put it to auction € 100,000,000.
A problem started with two of Bear Stearns fund, which has operated as a hedge fund to be developed. The word here is interesting to hedge funds. Hedge funds usually under the philosophy that investing in a large number of loans that minimize risk anything you risk. While some people may go into foreclosure investors are protected because they have invested in a high number of loans. The problem of financialIndustry began in mid-2007 it became clear that a large number of them were going into foreclosure. In July, the two hedge funds had lost nearly all their value.
Complaints began in August began to fly as angry investors sue their losses have said that Bear Stearns is not the property of their exposure to hedge funds announced. A few months later, Bear Stearns said the depreciation of 1.2 billion for its securities.
2008 brought more problems at Bear Stearns. Rumorsbegan to circulate that Bear Stearns had liquidity problems. JP Morgan has started to provide emergency aid, to give Bear Stearns, but Bear Stearns does not seem to stop slide into financial chaos. This has led to the final bid of € 240 million for Bear Stearns. This was not only much less 20 billion of Bear Stearns was worth a year ago, but was lower than the value of Bear Stearns headquarters in New York, which is estimated at 1.2 billion. The fact that the purchase price is lowercompared to the value of the estate by Bear Stearns is a sign that many of the financial assets of Bear Stearns' has seen a negative value.
Another interesting point is the comparison of Bear Stearns to Countrywide. Both are great institutions with exposure to the subprime housing market. But Countrywide has a freewheeling society that ignores most of the risk has increased rapidly and quickly recognize and feel. Unlike Bear Stearns as a company of elders who had seen through inclement weatherMultiple recessions. But eventually led to the same market, two companies of the knee. In essence, spreading risk among many subprime borrowers do not help if the housing market weakens to go in a large percentage of borrowers in default. We hope that the collapse of Bear Stearns will serve as a lesson of warning for future business. And do not think the lesson hopefully only remain in memory only in difficult times, when it is often too late, but in good times, whensowed the seeds of future turmoil in financial markets.
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