JPMorgan to buy Bear Stearns for $2/share

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Monday , March 17, 2008 at 1259 hrs US financial services major JP Morgan Chase has agreed to buy beleaguered investment bank Bear Stearns for a mere two dollars a share which is about one-tenth of its price on Friday.

JP Morgan Chase would pay about USD 270 million in stocks in the face of Bear's huge losses on investments linked mortgages.

The government regulators have approved the deal which would help to stem the plummeting confidence in financial companies having an adverse effect on the economy.

In January 2007, Bear's share had traded at USD 170 but fell sharply as mortgage crisis gripped the market and closed at 30 dollars share at New York Stock Exchange on Friday after it was forced to seek emergency funding because of the cash crunch.

JP Morgan said the deal would be effective immediately and guarantee the trading obligation of Bear Stearns and its subsidiaries alongwith providing management oversight. The transaction would be a stock-for-stock exchange and JP Morgan would exchange 0.05473 shares of JP Morgan Chase common stock per share of Bear Stearns stocks.

Based on the closing prices on March 15, the transaction would have a value of about two dollars per share. There are no conditions attached to the deal and it is expected to be approved by the share holders by the end of second quarter of this year.

The Federal Reserve, the Office of the Comptroller of the Currency (OCC), and other federal agencies have given all necessary approvals.

In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to USD 30 billion of Bear Stearns' less liquid assets.

But one stumbling point for the sale, the Wall Street Journal said, appeared to be the amount of risk that JP Morgan would absorb in any type of transaction. While JP Morgan was eager to snap up some of Bear Stearns assets, such as its prime brokerage business that caters to hedge funds, Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, it said quoting people familiar with the matter.

"JPMorgan Chase stands behind Bear Stearns," said Dimon, Chairman and Chief Executive Officer of JPMorgan Chase in a statement. "Bear Stearns' clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns' counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner."

"This transaction helps us fill out some of the gaps in our franchise with manageable overlap," said Steve Black, co-CEO of JPMorgan Investment Bank.