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All,
Below is a story reported by the Orlando Sentinel concerning the loss
of money suffered by Joe Lewis when Bear Sternes bellied up.
Several Questions:
1. How would you have handled the situation?
2. Would you have lost money?
Preston
OrlandoSentinel.com
Lake Nona 'Medical City' will survive Lewis' Bear Stearns loss of
more than $1B
Jerry W. Jackson
Sentinel Staff Writer
March 18, 2008
Tavistock Group and its high-profile "medical city" in southeast
Orlando won't be hurt by owner Joe Lewis' loss of more than $1
billion in the meltdown of investment-banking giant Bear Stearns, a
spokesman for the British billionaire and his Windermere-based
company said Monday.
Lewis, ranked by Forbes magazine as the 368th-wealthiest person in
the world, had gambled as much as a third of his net worth during the
past year on a turnaround for Bear Stearns Cos., paying an average of
about $107 a share for 11 million shares, according to papers filed
with federal regulators.
But in a stunning downfall for the storied brokerage, the Federal
Reserve helped engineer a takeover Sunday by another U.S. investment-
banking giant, JPMorgan Chase & Co., for about $2 a share and the
assumption of debt.
"It happened very quickly. The investment essentially went to zero,"
said Doug McMahon, a managing director for the privately held
Tavistock, which Lewis uses to invest some of his earnings as a
currency trader and investor.
Lewis, who lives part time in Isleworth, the ultra-exclusive
residential development in southwest Orange County, will not have to
sell any of Tavistock's assets, McMahon said, because no debt was
involved in his Bear Stearns holdings.
"Certainly, it's a big deal," McMahon said of the loss. "But he can
absorb the hit, and it doesn't change the business here one way or
another." Forbes recently put Lewis' net worth at $3 billion, though
McMahon said that figure "underestimates his portfolio," and The
Sunday Times of London earlier this month reported that Lewis was
worth about $5.6 billion.
"Our actions will be reassuring," McMahon said of Tavistock. The
company will continue working, he said, on the infrastructure for its
planned medical campus in Lake Nona, a Lewis-owned development in the
southeast corner of Orlando. Buildings are already under construction
there for the University of Central Florida College of Medicine and
the Burnham Institute for Medical Research.
McMahon said Tavistock, which recently announced plans to build a
100,000-square-foot "wet lab" in Lake Nona in hopes of attracting
startup biotech companies to the medical campus, is going forward
with design work on that project. The company also just began
building a joint-venture golf resort on New Providence in the
Bahamas, in partnership with golfers Tiger Woods and Ernie Els.
Lewis, 71, who was born in an apartment above a pub in London's East
End, has been widely known as a "contrarian" investor for years,
gambling on big returns as others are fleeing an investment. Long a
resident of the Bahamas, he began buying up Central Florida property
in the late 1970s, acquiring both Isleworth and Lake Nona when they
were financially ailing luxury developments.
He began snapping up shares in Bear Stearns last year just as the
breakdown of the nation's subprime-mortgage market was beginning to
spread to other credit instruments across the country and around the
world. The company's shares were trading at well over $100 a share
when Lewis began accumulating his stake through a Tavistock
affiliate, but Bear Stearns had helped create the market for complex
financial derivatives, and as that market unraveled, the company's
stock price fell.
Lewis kept buying as the share price fell, and at one point he was
the company's single-largest shareholder. He ranked second, with more
than 9 percent of the outstanding shares, when Bear Stearns' fortunes
took a turn for the worse last week and the company could no longer
raise capital on its own.
McMahon, who oversees business investment and marketing for
Tavistock, said Lewis never sold his shares as the credit crisis
deepened. "It was intended as a long-term investment," he said, and
as a bad stock bet is likely to go down as one of the biggest in
history by an individual.
New York-based JPMorgan, the third-largest financial-services company
in the U.S., agreed to pay about $260 million for Bear -- a fraction
of its $13.6 billion market value as of Nov. 30, the end of its
previous fiscal year.
David Currie, a professor of economics at Rollins College's graduate
school of business in Winter Park, said the Fed's action in helping
to arrange the deal was a high-stakes gamble in itself, designed to
maintain liquidity in the financial markets and calm the nerves of
investors and bankers worldwide.
"The key is confidence," Currie said. "Once people lose confidence,
they try to liquidate as fast as they can."
Currie said he, too, was surprised by the rapid collapse of Bear
Stearns, an 85-year-old financial institution that had a stock-market
capitalization of $3.4 billion, or $30 a share, as recently as
Friday, when the Fed and JPMorgan announced a rescue effort. But he
said he was not surprised that the nation's central bank had crafted
a plan to help Bear avoid bankruptcy.
Bear Stearns stock was still trading at more than $4 a share Monday,
an indication that at least some investors were betting that the
offer of about $2 a share from JPMorgan will somehow be bettered. By
the end of the day Monday, a federal lawsuit seeking class-action
status had been filed in New York on behalf of investors who had
purchased Bear Stearns shares between Dec. 14, 2006, and March 14.
The complaint accuses the company of making "materially false and
misleading statements" about its financial condition, causing the
stock to trade at "artificially inflated prices," which peaked at
$159.36 a share in April.
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