Tuesday, October 14, 2008

Why did Paulson do it?

Why would JP Morgan Chase need more capital?

They just raised $10 billion, $2 billion more than they said they would, in the most choppy and difficult markets in decades, a week ago or so.

No wonder their shares were ... down in today's up trading day. They just got "involuntarily injected".

Does he think the market will not eventually see through this cloak-and-dagger routine and wonder why $10 billion more is enough for Morgan Stanley and Goldman, presently, but the $11 billion equity raise that Lehman did months before their downfall was ... not enough.

I'll bet Citigroup is pissed that they didn't try to bid more, now that the taxpayers are subsidizing BOA's purchase of Wachovia (with an "extra" $5 billion "injection").


This is what happens when you hire investment bankers. They do deals.


What would you do if someone forced you to take capital?

I'd buy back either high-yielding debt or common shares*.

Or, I'd write down the worst of my assets, like my commercial real-estate portfolio, my buyout loans ...

I'd hang onto my sub-prime junk. Why? I might get to sell it to Paulson's Cash-and-Carry guy for an above-market price.

To be charitable, maybe there is something we don't know. Maybe they need the money, so they can comply we conservative accounting principles for assets? ... this is still the Bush Administration. Would you put a high probability on that?

*Update: Under the terms of the deal, this is restricted, unless you pay back the government first.

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