Monday, March 17, 2008
The mortgage meltdown continues this week with JPMorgan buying arch rival Bear Stearns (BSC) for a 98% discount, about $236 million (i.e., next to nothing). In fact, the Bear Stearns building on Madison Avenue itself is worth more than the entire buyout. The biggest loser, other than the American people who are essentially putting up $30 billion to guarantee Bear's mortgage securities, may be Joseph Lewis, who lost $1.16 billion as a result of the deal, which values each share of Bear Stearns at $2.
As the second largest underwriter of mortgage-backed bonds, Bear Stearns was uniquely exposed to the subprime collapse. Last summer, two of its hedge funds failed, a precursor of the firm's eventual demise. What's makes it more surprising is that Bear had $1 billion worth of offsetting, short positions to hedge its exposure to subprime mortgages.
Joe Lewis's total wealth is estimated at $2.5 billion so this is a major blow to the former currency trader. Just last week, the billionaire was even planning to increase his stake in Bear, seeing the falling share price as an opportunity to snap up more at a bargain price. Bear was trading close to $63 that day. He had originally bought his 9.4% stake at $107.
His nickname is the Boxer, a reference to his success trading currencies as well as an homage to his names similarity to boxing champion Joe Louis. He initially set up a computerized trading operation in the Bahamas where he speculated on the movements of foreign currencies. Like George Soros, Lewis is thought to have made hundreds of millions by betting against the British pound. He also made a killing during the Mexican peso crisis.
His previous investments would have painted a much different picture of a well-diversified investor:
Since then Lewis has shrewdly invested his profits through the Tavistock Group, which has interests in 75 companies in areas including property, financial services, life sciences, energy, industry and consumer goods. Among his property holdings are 3,600 acres in the Bahamas and 8,000 acres in Florida. In Britain he was recently involved with a group of investors who sold their stake in housebuilder Countryside Properties for a profit of about £10m. Other assets include property and a stake in Tottenham Hotspur football club.
Joe Lewis on his yacht
Empty lobby at Bear Stearns