The Bear Stearns Opportunity to Establish
Many of you have raised questions about what we should or should
not try to accomplish at
tomorrow’s meeting of the Bear Stearns Forum.
There are really two essential issues that must be addressed, for the
proposed Bear Stearns transaction and as a foundation for our evolving
marketplace: what is fair, and who you can rely upon for fairness.
We are in a position now, after two months, to look calmly and carefully at
what needs to be done, and at how to do it right. Shareholders of Bear
Stearns are being asked to vote, now, in today’s light, on terms that were
crafted in confusion and frustration, and that required a panic-induced
suspension of rules. The shareholders and managers of JPMorgan Chase must
also consider how that company’s decisions, now and in the view of
historians, will define its leadership position. And all of us must decide
what kind of marketplace we want.
As investors, you can choose to rely upon either of two decision-makers for
JPMorgan Chase – As the only viable buyer of
Bear Stearns, JPMorgan can effectively dictate its terms. In an economic
analysis, they would benefit from fairness if the commercial values derived
from an orderly marketplace and from brand recognition exceed any difference
in the transaction costs. In common sense, it’s enlightened leadership.
You must decide whether you think that JPMorgan, having demonstrated
strength and courage, will want to secure its place by adding a
demonstration of its commitment to rules.
Court – If you don’t want to rely upon JPMorgan,
you can ask a court to decide what’s fair. The process is often viewed as
being focused more on legal definitions and litigation attrition tactics
than on fairness, but it’s our only legitimate means of enforcing rights
when a party doesn’t respect them voluntarily.
Both choices have advocates. The portfolio manager who initiated the issue
for this Forum program continues to have a significantly larger investment
position in JPMorgan than he had in Bear Stearns, and expresses confidence
in JPMorgan’s leadership. Other investors have decided not to rely on
JPMorgan and have filed lawsuits. You will have the opportunity to consider
both alternatives at tomorrow’s meeting.
Most importantly, though, you must decide what kind of marketplace you want,
and what you want to do about it. The Bear Stearns situation has shown that
some old rules didn’t work and probably need to be fixed, but the crisis
reaction was to suspend the rules rather than replace them. Do you want a
marketplace in which people can argue that suspending rules may be
justified, giving everyone incentives to create the justifications? Put
simply, you need to decide whether you want new rules or no rules.
I ask you to think about whether you’ll want to look back on the Bear
Stearns event as the foundation for suspending rules, or as a foundation for
restoring order. And then think about how you’ll want to remember your own
contribution to the definition of our new marketplace.
If you want to do so tomorrow, you’ll be able to communicate your views to
JP Morgan and to the lawyers representing shareholder interests in the
courts. It’s up to you.
GL – May 13, 2008
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022