Your opinion wanted: Why is Bear Stearns trading at $6 when it's been purchased at $2?

My blog is brand new and so I have low (read no) expectations of recieving any replies.

That said what are your thoughts? If BSC had been purchased by JPM for $2 a share in stock why is it trading at $6. The government has already approved the deal. Can't we just buy JPM and short BSC and profit on the spread? What am I missing? What rumors have you heard regarding a better bid?

I look forward any responses.

Bear Stearns: The Facts, Some Opinion, and Who Stands to Lose the Most

Wow what a difference a little time makes. In January Bear Stearns was worth $30 Billion and after Firday's firesale was worth about $3.5 Billion and now it sold for under $250 million dollars to JP Morgan Chase (JPM) yesterday. Essentially, BSC investors have been crushed.

The Facts:

The Merger Agreement (PDF)

JPMorgan to Buy Bear Stearns for $2 a Share in ALL Stock Deal

Some Opinion:

Todd Sullivan comments on what he feels like is an incredible bargain:
JP Morgan Dimon's Bargain Purchase
Todd left some room for doubt on whether the shareholders will approve the merger.

See who stands to lose the most and who the large shareholders are here:
A Stake Through the Heart

Double Feature:

First Post of the Day from Bloomberg:

Ambac fell $2.02 to $8.70 today in New York Stock Exchange composite trading. The shares have tumbled 90 percent in the past year. A $1 billion equity offering would about double the amount of shares outstanding.

Credit-default swaps tied to Ambac's AAA rated insurance unit rose 10 basis points after the announcement to 530 basis points, according to CMA Datavision in London. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Bank Losses

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

Banks would lose as much as $70 billion if the top-rated bond insurers lose their credit ratings, Oppenheimer & Co. analysts estimated in January. MBIA's ratings were affirmed by Moody's and S&P last week.

Continue

Better Yet Check out this Video:



Hat Tip to Value Plays

Post of the Day: Credit Squeeze Still in `Early Days'

One investor worth watching (and listening to) is Prem Watsa of Fairfax Financial (FFH). In this Bloomberg article he states that we are still going to see more pain in the Credit Markets.

If you haven't read about the "Candian Warren Buffett" then you should read this excellent story on Watsa.

Here is an quote from the Bloomberg article:

We're just rolling through mortgages right now, but we haven't gone through all the other areas yet,'' such as credit- card debt, commercial real estate loans and automobile lending, Watsa said."

Enjoy!