More Signs That the End of the Cycle is Nigh

Earlier this month, Blackstone Group acquired Equity Office Properties Trust for $39 billion, the largest leveraged buyout in history.

When a guy as smart and as plugged in as Sam Zell decides to cash out of his biggest asset, it’s worth considering that he might know something that the rest of us don’t know. But since Sam isn’t a young guy, it’s also possible that he might have had other motiviations besides his sense of market timing.

But now we have rumors of a second, and much more unlikely group of insiders taking the money and running. Jamie Dimon, CEO of JP Morgan Chase, has for some time been reported to be looking for acquisitions (see this WSJ story), although his investors are not keen about the idea of a large deal. And who might be the object of his interest? According to, perhaps Bear Stearns.

Dealbreaker was looking for confirmation, so at this point, the story is pretty speculative. But if it pans out, it’s a real sign to head for the hills.

It is hard to think of an institution less suitable for acquisition than Bear Stearns. Bear is notorious for sharp-elbowed politics (even by the standards of Wall Street) and for payout formulas that put each managing director (or unit) on its own bottom, which makes everyone very expense conscious. And the effective payouts relative to one’s revenue generation are rumored to be the highest on the Street. In essence, you are more on your own than in other firms, which have more of an institutional franchise and flavor, but you get to eat what you kill.

And with that kind of formula, why would you sell out? Only if you saw a downturn coming. Bear is one of the three biggest prime brokers on Wall Street. They may see the end of a cycle leading to a slump in that business, which is highly profitable, or worse, they may want a bigger balance to absorb the risks if things really go bad.

If this deal does transpire, it will go down as one of the worst in history. Trust me. The cultural fit is terrible, and Dimon has less experience than he thinks he has in manaaging an investment bank, particularly one as aggressive and trading-driven as Bear Stearns.

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