JPMorgan acquires troubled Bear

JPMorgan completes deal to acquire foundering Wall Street brokerage and stave off wider chaos in financial markets.

JPMorgan Chase & Co. said Sunday that it would acquire troubled Wall Street firm Bear Stearns amid deepening fears that Bear's demise could have sent shockwaves across the already shaky financial markets.

The deal values Bear Stearns at $236 million, or just $2 a share - shares had closed at $30 on Friday, down 47% that day.

JPMorgan is taking immediate responsibility for Bear's trading obligations and assuming "management oversight" of the firm's operations. The deal is subject to approval by shareholders but has already been approved by the Federal Reserve and other regulators, according to a statement released by JPMorgan. The Fed is providing special emergency financing for up to $30 billion in Bear Stearns (BSC, Fortune 500) assets.

With the global credit crisis worsening, the Fed - along with officials from the Treasury Department - has been taking dramatic action to help banks and prevent widespread panic through the financial markets.

"JPMorgan stands behind Bear Stearns," said Jamie Dimon, chairman and chief executive of JPMorgan. "Bear Stearns clients and counterparties should feel secure that JPMorgan is guaranteeing ... risk," he continued.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. Bear was dealing with a classic run-on-the-bank: The firm's short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt. The one-two punch overwhelmed Bear's cash position.

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

The fast-track deal is expected to close by the end of June, the statement said.

Bear Stearns has approximately 14,000 employees worldwide.

A deep, fast fall

The deal marks an inglorious chapter for 85-year-old Bear Stearns, a storied Wall Street firm whose unraveling has been fast and furious.

Rumors that Bear Stearns was on the verge of collapse started buzzing around Wall Street trading desks last Monday. Chief Executive Alan Schwartz - who took over as CEO in early January from longtime chief Jimmy Cayne - appeared on television on Wednesday afternoon to reassure the markets that the firm was stable.

But by Thursday night, Bear was in a severe crunch. Some firms that trade with it effectively stopped offering it credit because they feared that Bear was running short of short-term funding, or liquidity.

Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last year.

JPMorgan-Bear deal close

JPMorgan nearing completion of deal to acquire foundering Wall Street brokerage Bear Stearns, Wall Street Journal reports.

JPMorgan Chase & Co. was reportedly close Sunday to acquiring troubled Wall Street firm Bear Stearns as fears deepened that Bear's demise could send shockwaves across the already shaky financial markets.

The Wall Street Journal cited unnamed sources who said the parties were trying to complete a tie-up before the financial markets open in Asia on Monday. The Journal also said that Bear Stearns executives are preparing for a possible bankruptcy filing - a move the firm might have to take if it doesn't consummate a deal.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan.

With the global credit crisis worsening, the Fed - along with officials from the Treasury Department and other government agencies - took the dramatic action to prevent the investment bank from going under and igniting widespread panic through the financial markets.

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

The Journal report said the terms of the deal were still being negotiated, but that Bear Stearns could sell for about $2.2 billion, or slightly less than $20 a share. Bear Stearns shares closed at $30 on Friday, down 47%.

A deep, fast fall

The deal would mark an inglorious final chapter for 85-year-old Bear Stearns, a storied Wall Street firm whose unraveling has been fast and furious.

Rumors that Bear Stearns was on the verge of collapse started buzzing around Wall Street trading desks last Monday. Chief Executive Alan Schwartz - who took over as CEO in early January from longtime chief Jimmy Cayne - appeared on television on Wednesday afternoon to reassure the markets that the firm was stable.

But by Thursday night, Bear was in a severe crunch. Some firms that trade with it effectively stopped offering it credit because they feared that Bear was running short of short-term funding, or liquidity.

Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last year.

Bear Stearns May Lose Independence After Fed Bailout

Bear Stearns Cos.'s 85 years as an independent Wall Street firm may be coming to an end as JPMorgan Chase & Co. considers buying the crippled company.

Teetering on the brink of collapse from a lack of cash, New York-based Bear Stearns got emergency funding yesterday from the Federal Reserve and JPMorgan in the largest government bailout of a U.S. securities firm. The move failed to avert a crisis of confidence among Bear Stearns's customers and shareholders, who drove the stock down a record 47 percent.

After denying earlier this week that access to capital was at risk, Bear Stearns Chief Executive Officer Alan Schwartz said yesterday that the company's cash position had significantly deteriorated in the past 24 hours. The Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement yesterday.

Now JPMorgan, led by Chief Executive Officer Jamie Dimon, is considering buying Bear Stearns, according to three people briefed on the matter. No agreement has been reached and it's possible no deal will be completed, said the people, who declined be identified because the discussions are confidential. A person close to JPMorgan said the bank may also be interested in buying Bear Stearns's prime brokerage unit, which provides loans and processes trades for hedge funds.

Dimon, whose New York-based firm has suffered fewer losses than rivals during the credit-market contraction, has said he's open to making an acquisition. The bank has plenty of capital, he told the audience at a dinner hosted by the Economic Club of Washington on March 12, the day before his 52nd birthday.

`Devastating Blow'

The Fed acted to prevent the failure of the second-biggest underwriter of U.S. mortgage bonds and forestall a potential market panic as losses by banks and brokers reached $195 billion and stocks plunged for a third day this week.

I don't think they can afford to let Bear go, said Charles Geisst, the author of 100 Years on Wall Street, referring to the New York Fed bailout. At this particular moment in time, it would be a devastating blow to the markets.

Bear Stearns, founded in 1923, acted in response to market rumors of a liquidity crisis, CEO Schwartz, 57, said in a separate statement. He said earlier this week that the company's liquidity cushion was sufficient to weather the credit-market contraction. Bear Stearns's cash shortfall began March 11 after rumors spread that it lacked sufficient access to capital, and lenders and clients began withdrawing funds, the Washington-based U.S. Securities and Exchange Commission said in a statement released late yesterday.

Shares Tumble

We have tried to confront and dispel these rumors and parse fact from fiction, Schwartz, who was named CEO less than three months ago, said in the company's statement yesterday. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated.

The announcement caused financial shares to plunge, with Bear Stearns tumbling $27 to $30 in New York Stock Exchange composite trading. The stock has lost 66 percent of its value this year. The sinking share price has wiped out $10.5 billion of shareholder value in the last three months.

Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also led declines as all 10 industry groups in the Standard & Poor's 500 Index fell yesterday. Lehman, the biggest underwriter of U.S. mortgage bonds, said it obtained a $2 billion, three-year credit line from 40 banks.

Bear Stearns's long-term counterparty credit rating was reduced three levels to BBB by Standard & Poor's. The rating may be cut further, New York-based S&P said. It lowered the short- term rating to A3 from A1. Moody's Investors Service also downgraded the company's long-term rating to Baa1 from A2.

Cayne's Pick

Bear Stearns, which survived the Great Depression and first sold shares to the public in 1985, helped trigger a crash in the market for home loans to borrowers with blemished credit histories after two of its hedge funds collapsed in July. The failure of the two funds, which invested in securities linked to subprime mortgages, prompted a sell-off of the assets, which in turn led investors to shun other high-yield debt.

Schwartz, an executive with more than 30 years of experience at Bear Stearns, was the hand-picked choice of his predecessor, James Jimmy Cayne, 74, who remains non- executive chairman of the firm. Cayne stepped down after reporting an $854 million fourth-quarter loss, the first in the company's history.

On a conference call with analysts and investors after yesterday's announcement, Schwartz said that the company's book value was fundamentally unchanged. Clients continued to withdraw funds, he said.

For Sale

The firm has retained investment bank Lazard Ltd. to seek strategic alternatives, Schwartz said. Bear Stearns said it's also in talks with JPMorgan about long-term funding.

Steven Black, JPMorgan's co-head of investment banking, said on Feb. 27 that the bank was considering acquiring a prime brokerage that was for sale then. He didn't name the seller. Bank of America, which agreed to buy mortgage lender Countrywide Financial Corp. for $4 billion on Jan. 11, said four days later that it planned to sell its prime brokerage.

There happens to be one for sale and we are looking at it, Black said at a JPMorgan investor conference in New York.

Other potential Bear Stearns buyers include private equity firms such as J.C. Flowers & Co., the Wall Street Journal reported. HSBC Holdings Plc, Europe's largest bank by market value, also has the resources to make an acquisition.

`Good Pockets'

The London-based lender may rise 30 percent in London trading this year, outperforming other U.K. banks because of its rich capital reserves, Keefe, Bruyette & Woods Ltd. analyst James Hutson wrote in a March 13 note to investors.

Bear Stearns led Wall Street shares lower this year as the world's largest lenders and securities firms wrote down assets linked to the subprime mortgage market. Analysts in the past month have lowered expectations for earnings in the first quarter. Bear Stearns said it will report results on March 17.

JPMorgan, the third-largest U.S. bank by assets, has posted $3.7 billion in writedowns, a fraction of the $22.4 billion reported by Citigroup, the biggest U.S. lender.

JPMorgan is not loaded up with bad mortgage debt, said Vincent Farrell, principal at Scotsman Capital Management. Bear has a couple of very good pockets that any other firm would want to have if you can clear up the balance-sheet issue.

Lewis's Bet

About a sixth of the firm's income came from packaging and trading mortgage bonds, a market that has been almost completely frozen since July.

The future for Bear will be found in a forced marriage, said Charles Peabody, an analyst at Portales Partners LLC in New York who rates the stock a sell. Their business model is broken. They don't have the ability to go it alone.

Joseph Lewis, the second-largest shareholder in Bear Stearns Cos., wasn't planning to reduce his stake, a person close to him said March 11. Lewis, a 71-year-old billionaire, views his 9.4 percent investment as long-term, the person said.

The Fed is taking on the credit risk from collateral supplied by Bear Stearns, which approached the central bank for emergency funds, Fed staff officials said yesterday.

The Fed, under Chairman Ben S. Bernanke, voted unanimously to lend the funds through JPMorgan because it would be operationally simpler than a direct loan to Bear Stearns, the staff said on condition of anonymity. The regulator invoked a little-used law that allows it to make loans to corporations and private partnerships, which required a Board vote, according to the staffers.