1. How would Barclays have computed the value of customer lists acquired in the Lehman Brothers acquisition? How would JPMorgan Chase have computed the $8.665 billion of intangible assets acquired in its Bank One acquisition? Explain in detail.
2. Why did JPMorgan record no identifiable intangible assets when it acquired Bear Stearns and Washington Mutual?
3. If a firm pays less than the fair value of acquired net assets and has a potential gain, does it have an incentive to record identifiable intangible assets at a high or a low value? Explain.
4. If a firm pays more than the fair value of acquired net assets and has potential goodwill, does it have an incentive to record identifiable assets at a high or low value? Explain.
5. How subjective is the valuation of identifiable intangible assets? Explain.
6. Identify all the alleged undervalued or excess assets transferred to Barclays and all the alleged overstated liabilities transferred to Barclays (Exhibit 6).
7. Evaluate the Boise, Schiller response (Exhibit 7). Does the response address all of the alleged undervalued or excess asset claims and all the alleged overstated liability claims? Explain.
8. Is it possible that Barclays substantially undervalued the identifiable assets it acquired from LBHI (for example, by tens of billions of U.S. dollars)? Explain. Is it possible that JPMorgan undervalued the identifiable assets it acquired from Bear Stearns and Washington Mutual by similar amounts? Explain.
By the end of September 2007, there was no indication that questionable mortgages were a serious problem in the United States or abroad. On the contrary, the problems seemed both minor and in the past. HSBC Holdings plc wrote off $ 10.6 billion of sub-prime mortgage loans in March 2007, and New Century Financial Corporation filed for bankruptcy protection in April 2007. Those problems were small relative to the size of the world’s booming economies, and by September the problems seemed to be over. On Friday, October 5, 2007, the Dow Jones Industrial Average and S& P 500 Average reached record highs.
The same day, Merrill Lynch announced a $ 5 billion write-down, primarily on subprime loans. Ten days later, Citigroup announced a $ 5.9 billion write-off, including $ 2.24 billion for mortgage-backed securities and consumer loans. The following week, the week of October 24, Merrill Lynch increased its write-down to $ 8.4 billion, including a $ 7.9 billion write-down for mortgage-related derivatives. Mr. Stanley O’Neal, chairman and CEO of Merrill Lynch since 2003, resigned on October 29, 2007. Two weeks later, on November 5, Citigroup announced an estimated $ 8 to $ 11 billion loss on its $ 55 billion subprime mortgage- related portfolio; Citigroup CEO Charles Prince resigned that same day.