Hello there! For my opening post I would like to point out two things going on that have been underreported in the Bear Stearns Fiasco that are worth noting and investigating.
1) With the BSC share price moving to upward and onward towards $11, many reporters are hypothesizing that bondholders have been buying shares in an effort hold enough voting shares to protect their institutional investments. Because Barry said it I sort of accepted the theory without the requisite skepticism. Still, it’s an absurd argument. There are what, 140 million shares of bear outstanding? Volume has been at least half that every day for 6 of the last 7 trading days. That alone tells you it wasn't buyers and holders snapping up the stock.
I understand a lot of that volume is day traders playing it by the minute picking up pennies. Still, the bondholders would buy and hold through the shareholder vote, and if they really wanted to they could have held. This was speculation, and the speculators won out with this morning’s announcement.
2) More importantly:
Lost among all the discussion from the fallout, I feel like I should get something off my chest.
So, what was the main reason that Lehman saw a 40% drop on the day of the BSC? LEH sold-off 40% on the day of the BSC announcement–far higher than the other financial institutions caught in the subprime quagmire. Many analysts say it was because they don't really have the same retail arm, and thus were more exposed as an entity. Without the recurring revenues retail/private banking produce LEH is far more susceptible to weakening based on capital market seizure–and the resulting loss in revenues. I must suppose that the undiversified business mix puts the firm at increased risk, but at no point did Lehman acknowledge any of the same mistakes Bear made, and didn't have any large hedge funds bet the farm on their demise. Would it be totally crazy to suggest that if Lehman was run better and managed better, that maybe their exposure wouldn't be bad as Bear’s?
Furthermore, and this is what really aggravates me. Everyone suggesting that those with a big retail business would emerge unscathed is absolutely crazy...
More to come on that in a second article.