Thursday, March 20, 2008

Deutsche Bank interested in Bear Stearns?

(FT Alphaville) Those in the US dissatisfied with the $2 a share on the table from JPMorgan may have to look across the Atlantic for desperate inspiration.

The offer, labelled “derisory” by hapless financier Joe Lewis earlier this week, looks sewn up - partly through the structure of the deal, partly through the unreplicable support and momentum provided by the US authorities in sealing the agreement, and last and least, through the lack of credible counterbidders.

But Handelsblatt reports that there was at least one other bank seriously looking at Bear over the course of last weekend: Deutsche Bank. According to the story, Deutsche didn’t pull out of the bidding until Saturday afternoon.

Which sounds like late in the day for a deal sealed on Sunday - but negotiations were only just getting going at that stage. It was Sunday, reportedly, before the conclusion was finally reached that JPM wouldn’t act alone in buying Bear and would require assistance from the Fed.

Once that conclusion was reached, we suspect, any choice would have been relatively clear. The notion of providing official support for one bank forcibly to take over another at a clearance price is publicly marketable only if the buyer is American.

But Deutsche, unusually among the global banks, may have looked a credible counter-bidder. It has been least wounded among Europe’s top banks by the credit crisis and has not (yet) stumbled over risk management or asset pricing in the manner of SocGen or Credit Suisse. Its reputation and strength in fixed income would meld with Bear’s in the US, while a leg up in the world of prime brokerage would perhaps have been of interest.

The removal of a credible European alternative would at the very least have strengthened JPMorgan’s hand when, according to the NY Times, they on Sunday at midday professed themselves terrified by their skim-read of Bear’s books and lowered the suggested price from low double digits to $2. Bear Stearns shares closed at $5.33 on Thursday, but have traded as high as $8 this week.

The news that Deutsche Bank was in the running seems a tad academic - the JPMorgan deal looks nigh on impossible to bust.

But as those unhappy with the outcome start to squeal, and observers run the voting maths, the parallels with Northern Rock begin to grow. The “bidders” for Northern Rock in the “sale” process were nothing of the sort. It was an emergency restructuring of a company effectively in administration. Bear similarly is an emergency process, a fire sale, the difference being that this time shareholders get a vote of sorts.

Normal rules do not apply. The Northern Rock share price after it hit trouble last year never reflected the reality of the bank’s plight.

Related links
JPMorgan moves to woo top Bear staff - FT.com
Investors bet on rival Bear bids - FT.com

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