The Fall of Bear Stearns


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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

Case Details:

Price:

Case Code : FINC053 For delivery in electronic format: Rs. 300;
For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges

Themes

Sources of Finance, Capital Structure, Capital Budgeting
Case Length : 18 Pages
Period : 2007-2008
Pub. Date : 2009
Teaching Note : Not Available
Organization : Bear Stearns
Industry : Banking & Financial Services
Countries : US

Abstract:

The case examines how Bear Stearns, the fifth largest investment bank in the US, faced liquidity crisis in March 2008, leading to its collapse. It details the sequence of the events that led to its collapse and the measures taken by the bank to avoid the same.

The case covers a detailed note on the sub-prime crisis in the US and how Bear Stearns incurred significant losses in its investments in mortgage backed securities. It also examines the role of the US Fed to bail out Bear Stearns by helping JP Morgan Chase buy the troubled investment bank.

Issues:

Understand the reasons that led to the subprime crisis in the US and its impact on financial institutions.

Appreciate the importance of risk management in financial institutions.

Examine the need for strict regulations for controlling OTC derivatives market.

Study the drawbacks of high leverage in the investment banking business.

Analyze the role played by the US Fed to bail out Bear Stearns.

Contents:

  Page No.
Introduction 1
The Sub-Prime Crisis 2
Bear's Risky 'Hedge' Funds 5
Rumors that Killed the Bear 7
The Blame Game 9
Exhibits 11

Keywords:

Bear Stearns, JP Morgan Chase, US Subprime Crisis, Risk Management, Liquidity Management, Adjustable Rate Mortgages, Subprime borrowers, Mortgage backed securities, US Federal Reserve, Collateralized Debt Obligations, Securities Exchange Commission, Credit Default Swaps, Hedge fund, Securitization Process, Alan Greenspan, Glass-Steagall Act, Value at Risk, Stress Testing, Derivative Instruments

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