Case | HBS Case Collection | January 2009 (Revised November 2011)

The Tip of the Iceberg: JP Morgan Chase and Bear Stearns (A)

by Clayton S. Rose, Daniel Baird Bergstresser and David Lane

Abstract

"Bear Stearns & Co. burned through nearly all of its $18 billion in cash reserves during the week of March 10, 2008, and an unprecedented provision of liquidity support from the Federal Reserve on Friday, March 13 was insufficient to reverse the decline in Bear's condition. Federal Reserve Chairman Benjamin Bernanke, Treasury Secretary Henry Paulson, and New York Fed President Timothy Geithner were intent on limiting the impact of Bear's problems on the wider financial system. James ""Jamie"" Dimon, Morgan's Chairman and CEO, was in frequent contact with these regulators over the weekend of March 14–16, negotiating possible scenarios for the rescue of Bear, without which Bear would be forced to seek bankruptcy protection when markets opened on Monday. Late on Sunday afternoon, March 16, Bear's board accepted Morgan's offer to purchase Bear for $2 per share, an offer that would not have been made without significant government assistance. There was hope that the Bear rescue would help avert the far-reaching spread of damage into the larger financial world that many policymakers viewed as likely to follow the failure of a major investment bank. This case examines a seminal event in the financial and economic crisis that began in the summer of 2007 and provides background for better understanding the full scope of the crisis as it was revealed during the summer and fall of 2008. It was written to address two sets of issues. First, it provides the opportunity to understand the corporate finance issues of capital and liquidity and of firm valuation. Second, the case allows for the exploration of aspects of a firm's internal and external governance, as well as the challenges of navigating through a crisis when faced with compelling pressures from competing stakeholders."

Keywords: Mergers and Acquisitions; Financial Crisis; Capital; Financial Liquidity; Financial Strategy; Corporate Governance; Crisis Management; Business and Stakeholder Relations; Competition; Valuation; Financial Services Industry;

Citation:

Rose, Clayton S., Daniel Baird Bergstresser, and David Lane. "The Tip of the Iceberg: JP Morgan Chase and Bear Stearns (A)." Harvard Business School Case 309-001, January 2009. (Revised November 2011.)