Even in these tempestuous times, some things are still predictable. Bank CEOs still plead poverty after receiving billion-dollar favors from the government. And there are apparently still reporters who take their word for it.
Recently a lawsuit was filed against JPMorgan Chase which details massive investor fraud at Bear Stearns, the firm it acquired at the government's request -- and at considerable public expense -- during the 2008 crisis. And right on time, JPM CEO Jamie Dimon ran to reporters to claim that his bank really lost money on that extraordinarily cushy deal.
Such is the credulousness of our journalistic class that this well-timed disclaimer didn't raise any red flags at the Washington Post. And when the bank claimed that it lost $10 billion in the Bear Stearns acquisition. This extraordinary assertion is simply repeated, without challenge or investigation.
The figure wasn't even put in quotes.
The paper's editors punched up the bank-friendly spin by headlining the piece, "JPMorgan remorse on Bear Stearns prompts question: Were crisis mergers worth it?" Let's help readers out with that question.
Yes.
The Ten Billion Dollar Hit
In fact, as we noted yesterday, this was one hell of a deal for JPMorgan Chase. And nevertheless the Post unquestioningly asserts today that "JPMorgan took a $10 billion hit on the Bear Stearns portfolio."
Readers are entitled to an explanation for a statement that bold, but none is forthcoming. Instead, the Post wants us to believe -- as do a number of other Washington power players -- that Dimon and JPMorgan Chase took one for the team, jeopardizing their profits because ... well, because they love their country. It's already cost 'em ten billion, so let's give them a break, right?
And yet the Post, like most other major news outlets, reported in 2008 that the Federal Reserve agreed to absorb $29 billion in losses to the mortgage securities portfolio after JPM absorbed the first $1 billion. So where did this $10 billion figure come from? Given the deal which the government set up for the bank, a lot of money would have to disappear before a "hit" like this could talke place.
The Math
It was reported in 2008 that JPMorgan Chase paid a $1.2 billion to acquire Bear Stearns, whose Manhattan headquarters alone were valued at somewhere between $1.1 and 1.4 billion at the time. Then there were other properties, corporate jets, automobiles, various holdings, cash on hand ... since the Post didn't do the math, let's do it ourselves:
Published reports stated that Bear Stearns had a total of $370 billion in assets when JPM purchased it. Danielle Douglas, Post reporter whose byline appears in today's article, reports that the sale price as $1.5 billion, which is higher than earlier reports. The difference is not explained. But even if that higher figure is correct, JPMorgan Chase acquired $370 billion in assets for $1.5 billion.
That's a damned good deal.
For $1.5 billion (or less) JPM also bought itself another huge chunk of market share, a whole book of business filled with customers, a new team of employees, and an increase in the priceless leverage you get from being even more "too big to fail." That means you have an even bigger implied guarantee that the government will rescue you from future management mistakes.
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