Shareholders of Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the New York-based companies said in a statement late on Sunday. The Federal Reserve is providing financial backing to JPMorgan, the second-biggest US bank, and also cut the rate on direct loans to banks in its first emergency weekend action in almost three decades to stave off a broader market panic.
JPMorgan CEO Jamie Dimon bought Bear Stearns, once the biggest underwriter of US mortgage bonds, for less than the value of its real estate after clients, alarmed by speculation about a cash shortage, withdrew $17 billion in two days.
Faced with the prospect of bankruptcy, Bear Stearns CEO Alan Schwartz was forced to accept the deal less than five days after he assured investors that the companys liquidity cushion was sufficient to weather credit-market losses.
JPMorgan will give investors 0.05473 shares of its common stock for every share of Bear Stearns they own. Including shares in an employee-incentive plan, the purchase price may reach $270 million. JPMorgan, whose shares closed at $36.54 in New York trading on March 14, will get funding for the transaction from the Fed, including support for as much as $30 billion of Bear Stearnss less-liquid assets. Bear Stearns plunged 87% to $3.97 in Frankfurt trading on Monday.
Jamie Dimons done a great deal because the Federal Reserve is paying for it, said investor Jim Rogers, who co- founded the Quantum Hedge Fund with George Soros in the 1970s. JPMorgan stands behind Bear Stearns, Dimon, 52, said in the statement. Bear Stearnss clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearnss counterparty risk, he said.
The fire-sale to JPMorgan caps an eight-month slide in the companys fortunes that began last July with the collapse of two of its hedge funds, which invested in securities linked to subprime mortgages. The collapse of Bear Stearns ranks along with Drexel Burnham Lambert Inc as the biggest in Wall Street history.