A publicly traded company like Bear Stern (BS) is constantly being scrutinized by insiders and outsiders, such as financial analysts and investment managers. Usually these buy-side equity analysts are extremely well-educated people working for other financial services companies, like insurance, pension, mutual funds, etc. However, even after analyzing BS, they were not able to detect that something was catastrophically wrong with the company’s operations. I simply refuse to believe that BS was forthcoming about its liabilities. I’m very sure that they, in fact, hid their liabilities from investors.
The way I understand it, the liabilities were not the real problem. It was the assets that were overstated.
boston_level2_candidate Wrote: > > I simply refuse to believe that BS was forthcoming > about its liabilities. I’m very sure that they, > in fact, hid their liabilities from investors. I think the current situation is entirely conceivable without resorting to fraud. Remember that the financial statement standard for recognizing asset impairment or contingent liabilities is not necessarily the one that a prudent investor would want to use.
I don’t think this was about assets vs liabilities, it was about a liquidity mismatch. When the hedge funds started pulling their assets from BSC, they ran out of liquid assets to meet those immediate liabilities. Just your communal garden bank run, just much quicker and with no queues of joe public on the street. Much more civilised!
“Usually these buy-side equity analysts are extremely well-educated people working for other financial services companies, like insurance, pension, mutual funds, etc.” So? You give most equity analysts far too much credit, imo. They operate with the herd mentality and all surprisingly have very similar forecasts, even when the actual results are wildly different. Even the good analysts are unlikely to put out their honest estimate for fear of being wrong and losing respect and/or their job.
i agree with chrismaths… it wasnt an A vs L thing at all. big brokers survive on leverage, and that leverage comes from the repo market. if people wont lend to them their equity isnt enough to cover their needs, and they would go bankrupt (or in this cause bought out)
they wouldnt lend in the repo market because the collateral (assets) was crap
lxada269 Wrote: ------------------------------------------------------- > they wouldnt lend in the repo market because the > collateral (assets) was crap not that it was crap. Haircuts have widened so much it consumed too much capital , and they couldn’t just sell the assets in a fire sale scenario and get reasonable prices
question: we have all kinds f risk: liquidity,market,default,exchange rate etc… where does the risk arising from too much leverage fit in?. is there a term for it?
risk doesn’t arise from leverage. It is magnified by it.
I’m with the rest of the gang here. This isn’t going to be some Enronesque problem. Although it would be pretty cool if it was and JPM buys 'em and finds out they owe $80B to some Saudi guys, they’ve been offloading all their trading losses for the last year to a hundred SPV’s, and their corporate headquarters is built on a Superfund site on top of an ancient Indian graveyard filled with pissed-off ghost Indians.
I heard alot of talk about nervous investors making a run on the bank and thus putting the nails in the coffin of what was already a risky situation. The deal was partly constructed to prevent further runs on banks guilty by association.
joey, chrismaths, mike, did you guys here any of the early stage speculation about lehmans following suit as well. Seemed like amateur bullcrap to me, but then again, 2 months ago I would have laughed at someone who told me it would go down like this with daaaa bears. In my mind the key difference between the two is that bear’s been circling the drain since those hedge funds imploded in march.
LEH’s has been a little volatile recently (down 30% one day, up 40% the next,…) It sounds like amateur bull crap to me, too, except I don’t think I have ever felt the way I felt when I saw the JPM offer was $2 and posted on AF that it must be a typo and they meant $20. The only thing that sways me from thinking the market could be just as wrong about LEH as it was about BSC is that FED doesn’t want this to happen twice in a short period of time.