Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Technology Stocks & Market Talk With Don Wolanchuk -- Ignore unavailable to you. Want to Upgrade?

To: da_cheif™ who wrote (30228)	3/17/2008 11:47:24 PM
From: Chip McVickar	Respond to of 207077

might be for the wall... pbs.org One on One with Dick Bove, Banking Analyst, Punk and Ziegel & Co. Monday, March 17, 2008 SUSIE GHARIB: Back now to our top story, the Bear Stearns bail out and whether other big financial firms are at risk. Joining us now with more analysis, Dick Bove, banking analyst at Punk and Ziegel. Hi, Dick. DICK BOVE, BANKING ANALYST, PUNK, ZIEGEL & CO.: Hi, Susie, how are you? GHARIB: I'm fine, thank you, Dick, you know, some people are describing JPMorgan's purchase of Bear Stearns as a home run. What do you think? BOVE: I don't think it is a home run at all. I think they bought a company which was if deep trouble. It was bankrupt. It had negative cash flows and whose assets are questionable at best. So I think that the risks that JPMorgan is taking on here, the fact that they are going to have to lose $6 billion pretax in the next 12 months as a result of doing this merger would suggest that it is a high-risk venture. GHARIB: Is that why the stock of Bear Stearns was trading above the offering price JPMorgan offered $2, Bear Stearns closed at above $4. I mean what do you make of that? BOVE: Well, I think that the simplistic answer would be short- covering because so many people made some much money on the downside. But there are two other answers. One is that a lot of people feel that in liquidation, the assets of Bear Stearns would be worth a great deal more than the $2 per share. Unfortunately, however, there really aren't that many assets at Bear Stearns which are appealing. They've got a building and I'm sure that that has some value. But also they have a prime brokerage business which is basically fallen apart and has very little value. They have an asset management business which is being sued, so I don't think that's very valuable. They have a retail sales force which will be leaving the company in droves should JPMorgan not take it over, so that's not terribly valuable. So I'm not sure that there are very many assets there that in liquidation would create value. And finally, I don't think there is any white night. A white night would have to be doing an aggressive takeover against management's desire, against the desire of the Fed, against the desire of the president of the United States just isn't going to happen. GHARIB: So is JPMorgan take on risk of its own by doing this rescue operation? BOVE: Certainly. I mean they are taking on a balance sheet which at least at the end of the fourth quarter was $395 billion in size with something like $190 billion in a variety type of securities. And it doesn't know really what those securities are. I mean it hasn't had the time in a day and a half you can't go through and really learn and understand what is in that securities portfolio. So I think the risks in this transaction are quite high. GHARIB: Let's talk about the health of other big financial firms in the financial sector. Lehman, Goldman Sachs and Morgan Stanley report earnings this week. What are your expectations and are they at risk? BOVE: Well, I think the first question is are they at risk because basically today all of these stocks went down sharply. Even Lehman Brothers in particular was being attacked. I think what the market has failed to grasp is that the Federal Reserve has done something that is actually very innovative. They have guaranteed in essence the assets of these companies which means that it would take someone who had the ability to bust the Fed in order to take down Lehman. Because if you try and take down Lehman and the Fed is going to give you -- give Lehman all of the money it needs, you got to break the Fed in order to get at Lehman, so it just isn't going to happen. It is not realistic. In terms of the earnings that will be produced tomorrow and Wednesday, they are going to be pretty poor. And they are going to reflect markdowns in securities and they're going to reflect the fact that the core business activities of these companies have been negatively impacted. GHARIB: Let's go back to what you were saying about the Federal Reserve. Do you think that the Federal Reserve can handle this financial crisis by itself? BOVE: Actually, I don't. I think that the Federal Reserve needs help and I think it needs help from the other central banks around the world. Because even though the Federal Reserve is a pretty potent organization, it only has $920 billion in assets. And JPMorgan for example, has almost twice that amount. Citigroup has more than twice that amount. So the amount of, if you will, guarantees which the Federal Reserve is putting out there is on roughly $2 trillion or more in securities and it only has $920 billion to back up those guarantees. GHARIB: Quickly we have just a few seconds left, so what is the bottom line here? Where are we in this financial crisis? Are we near the end so that the Fed is not at risk? BOVE: I think we are extraordinarily close to the end because basically speaking, either the Fed's actions are going to calm the markets which I actually think it will do or the Fed is going to fail to be able to back its guarantees, in which case we're in terrible trouble. GHARIB: Let's hope not. Thank you so much Dick for coming on the program and explaining it all. BOVE: Thank you, Susie. GHARIB: My guest tonight, Dick Bove, banking analyst at Punk and Ziegel.