Not all bad news for Bear Stearns this week, we are happy to report.
As the Wall Street bank revealed problems at a third of its funds, and the legal wrangling began over the losses incurred by investors in the original two now-defunct hedge funds, the bank’s share price has taken a pounding.
Amid the turmoil though, a press release reveals that Bear was this week selected as the lead sponsor for US intercollegiate squash (via the Motley Fool). Phew.
“Bear Stearns is a champion of the professional squash community,” said the president of the College Squash Association. Which is nice now it’s not so much a champion of the professional investing community.
But the CSA might want to hold off on costly reprinting of their sweatshirts.
Bear’s share price is down 20 per cent since early June, and the bank trades at a lowly price to book of close to 1.2, below trough valuations of earlier this decade, notes Lex. Its trailing p/e is just nine times, and its market value has fallen to less than $17bn.
The bank looks vulnerable on several fronts. It stands to make less money securitising MBSs and other structured products, and UBS estimates that 25 per cent of Bear’s earnings power is related to these areas. There are the reputational issues for its hedge fund and asset management business. And Bear is also being hurt by investor nervousness related to the souring of the LBO market, says Lex.
Bear was already being talked about as a takeover candidate back in June – when its share price chart looked pretty healthy compared to the one above.
Then in early July, CNBC’s Charlie Gasparino commented that, with rumours swirling, a further fall of $10 in Bear’s stock would make it one that “clearly could be bought by a bigger player.” Not so, argued Felix Salmon in response. A $10 fall wouldn’t do it and in any case:
Bear Stearns is only slightly less closely held than Dow Jones. Its employees in general, and its CEO in particular, have de facto control over whether the company is sold. And, like any bankers, they tend to like to sell high, rather than sell out during a period of distress.
Of course, the insiders at Dow Jones did sell this week. And Bear’s share price is now off more than $25 since Gasparino’s comment.
Now, concludes Lex:
All in, the sell-off in Bear’s stock has been so brutal, it would be surprising if someone, somewhere, was not wondering if now was the time to pounce.
Anyone for squash?