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Bear Stearns news makes tense day for area financial folks

Twin Cities brokers, money managers and financial advisers were riveted to their television screens, computer monitors and telephones Monday, in the wake of the takeover engineered by the Federal Reserve of the Bear Stearns investment firm.

Braced for the worst, they found that by the end of the day the stock market wound up back pretty much where it began at the opening bell.

With two glaring exceptions, Bear Stearns and J.P. Morgan Chase Co. J.P. Morgan rose 10.3 percent, thanks to investors' conclusions that it will benefit immensely from the deal.

Relief may be short-lived
However, any relief over the calming of themarket on Monday may be strictly temporary. Investors are still waiting to see where the next shoes will drop in the Great Credit Crunch of 2008.


"This was a very bad day if you were a Bear shareholder or employee," said Dave Heidel, an analyst for Accredited Investors in Edina. "I was up at a quarter to five this morning to see how the Asian markets were reacting."

Late Sunday, Fed officials agreed to lend $30 billion to J.P. Morgan to help finance that firm's takeover of stressed Bear Stearns for $236 million, or just $2 a share. They feared that Bear would have gone bankrupt without the rescue, sending global financial markets into a chilling, domino-like crash.

Bear's stock traded for $30 a share when it closed on Friday. Just 14 months ago, it reached $170.

"It amazed me," Randy Nitzsche, CEO at Northland Securities in Minneapolis said of the $2-a-share price. "Nobody knew they were in that bad of a shape."

Accredited manages about $750 million, largely for 350 individual investors. Heidel kept in contact with business associates at J.P. Morgan over the weekend. But Accredited Investors' clients are generally long-term investors and the firm sends them market summaries regularly. Thus they seldom need impromptu advice or soothing words from Heidel or others at Accredited. Only four clients called the firm on Monday.

MPMG long wary of bank stocks

Money managers at the Minneapolis Portfolio Management Group (MPMG) took the news in stride. That's largely because they deliberately avoid putting their clients' money into bank stocks. MPMG manages $700 million, about 95 percent of it in stocks, with roughly a third of that in the stocks of gold and natural resource companies.

"What we've been telling our clients for years is 'Don’t own any financial stocks,' " says Phil Grodnick, MPMG's chief executive officer. Apparently they've taken that advice, because the firm didn't get any calls of concern from them on Monday.

Grodnick argues that generally, financial stocks are too heavily burdened with debt. "We don't like they way they've been doing their business," he said. "We’re not comfortable with it." But beyond those companies, "the market is in better shape than many people think," he said.

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Comments (1)

Where are the politicians and journalists? Jamie Dimon testified today in front of the Senate about the Bear Stearns purchase. This should be the issue of the Minnesota Senate campaign...the banking crisis, weak dollar and impact on our economy. What should be done?

There is a significant story here that is going to affect all of us in Minnesota. Franken? Coleman? Nelson-Pallmeyer? Where are you on this issue?

Gretchen Morgenson of the NY Times started talking about the implication of credit default swaps and uncontrolled counter-party risk in February. The Wall Street Journal had the first mention of this house of cards (credit default swaps) this week.

As Greenberger said in his interview on NPR's Fresh Air with Terry Gross this evening, if FDR had been in the Oval office during this current crisis he would be having a fireside chat with the American people, explaining the fundamentals of this crisis situation and what will be done.

This interview from NPR nicely describes the issue.

http://www.npr.org/templates/story/story.php?storyId=89338743