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Tickers in this Article: JPM, BAC, MER, BCS, OTC:LEHMQ


A number of money center banks, both nationally and internationally, have used the current credit crisis as an opportunity to purchases complete investment banks or portions of investment banks on the cheap.

A money center bank is a bank that deals with other corporations, other banks and governments.

JPMorgan (NYSE:JPM) had the opportunity to purchase Bear Stearns for $2 a share when the company was trading much higher the Friday before a Sunday morning sale arranged by the government. Likewise, Bank of America and Barclays PLC have come in and taken over distressed brokers Merrill Lynch and Lehman Brothers respectively when just three months ago the companies would have been untouchable. In this article we'll look at all three deals to see which bank made off with the best prize.

JPMorgan/Bear Stearns
JPMorgan stole Bear Stearns and later went back for Lehman Brothers but the same take away offer was not given to the bank by the Treasury. JPMorgan CEO Jamie Dimon is one of the best operators in the business and came away with some of the Bear Stearns' assets extremely cheap. A government bailout and then a very low asking price were meant to punish the risky behavior of Bear Stearns, but the actions of the Federal Reserve and the Treasury may have only benefited JPMorgan Chase and the employees at Bear that are able to keep their jobs.

Bank of America/Merrill Lynch
Bank of America (NYSE:BAC) and CEO Ken Lewis have been buying distressed companies such as Countrywide Financial and Merrill Lynch (NYSE:MER) but in the case of Merrill, Bank of America paid at a premium. Looking at the acquisitions from a longer term perspective, the purchases make very good sense. Bank of America is now a much bigger player in the mortgage business than it was before the crisis began. The cultures at Bank of America and Merrill Lynch may clash, but the cost cutting that will occur will make the investment bank purchase worthwhile for Lewis. (For related reading, see Analyzing An Acquisition Announcement.)

The company considered Lehman Brothers also but waited and picked up the better performing Merrill Lynch at a decent price. It could have paid less if it had waited a couple of days, but Bank of America went after the company that it felt would provide the best resources for growth going forward when the price was suitable. Bank of America will now become the biggest brokerage in the country after already acquiring its way to being the biggest retail bank and credit card company in the U.S.

Barclays/Lehman
Barclays PLC's (NYSE:BCS) president Bob Diamond and bought up pieces of Lehman Brothers (OTC:LEHMQ) after the company declared bankruptcy. Many have wondered why Henry Paulson and the U.S. Treasury Department let Lehman Brothers fail when the same government body forced the sale of Bear Stearns prior to failing. But the actions of Paulson allowed Barclays to get the best deal of all the money center bank deals that have occurred to this point during the current credit crisis. (Given the current economy the word bankruptcy is getting a lot of play. If you want to learn more about the subject take a gander at What You Need To Know About Bankruptcy.)

Barclays had considered purchasing all of Lehman just days before but now it got the best pieces and left the rest for another buyer. This was similar to the Bear Stearns deal, except Barclays was able to pick and choose the assets it wanted. One of the prizes in the deal was purchasing Lehman's New York headquarters as part of the $1.75 billion total price.

Conclusion

The credit crunch has been difficult on the U.S. Investment Banks as their business models became unmanageable and their share prices dropped dramatically. Money center banks have been able to step in with their balance sheets and purchase portions and complete businesses including Bear Stearns, Merrill Lynch and Lehman Brothers. For the companies that are able to survive the current downturn, the opportunities have been great and their profitability should be magnified as soon as the American economy improves.

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