Bear Stearns Fire Sale

The recent fire sale of Bear Stearns stock to JP Morgan Chase for $2 a share has investors everywhere worried. How could a financial institution with almost $400 billion in assets and $12 billion in shareholder equity go nearly bankrupt over the time span of a week? Taking a look at Bear Stearns’ balance sheet will give away the answer. While they totaled $395 billion in assets, only $34 billion was in cash or cash equivalent.

The government backed buyout of Bear Stearns by JP Morgan Chase was the best option for the debt stricken financial institution. If a buyout had not been arranged, the bank would have collapsed and billions of dollars would have been lost by all who were linked to this bank…shareholders and loan holders alike. All those who held a mortgage or loan with Bear Stearns would be at a loss after having their loan revoked due to the financial institutions closure. This would leave many homeowners without a home loan or without a home, or even both. This, on top of the already delicate housing market and the fragile state of the stock market, would inevitably lead to more losses and financial despair for many.

As a customer of a financial institution, you entrust them to take care of your finances, whether it be personal loans, home equity lines of credit, mortgages or other types of financing. But what happens when the financial institution loses your money and finds themselves in the red? They try to sell off your loan to another bank, hoping to regain the loss and rid of the loan. This frees them of responsibility to you and they gain their losses back in cash. While buying and selling loans is common among financial institutions, Bear Stearns had trouble selling their loans, as they were involved in very controversial lending practices. Undesirable loans are hard to sell, causing a financial institution to go deeper and deeper into the red.

If you have been wronged by your financial institution or have suffered great financial loss due to your ill-acting bank, please call the Pennsylvania investment loss lawyers at Anapol Schwartz for your free consultation today.

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