JP Morgan ups Bear Stearns offer
Firm improves offer to buy struggling US bank hit by subprime mortgage crisis.
JP Morgan’s revised bid for Bear Stearns comes after several shareholders had criticised the initial bid which had valued the Wall Street bank and brokerage at the bargain basement price of $236m.
Several analysts had pointed out that aside from its other business assets, Bear Stearns’ corporate headquarters in New York was alone worth around $1bn.
JP Morgan’s initial bid, announced earlier this month, was backed by the US Federal Reserve which had feared Bear Stearns would fall victim to soured mortgage investments and the global credit crunch.
That had raised fears that a prolonged fight would have derailed the deal, threatening further damage to the already nervous financial sector.
Fears of collapse
As recently as last year, Bear Stearns shares had been trading at well over $100 and two weeks ago its stock was still worth $67 each.
But its stock plummeted sharply as its financial woes soared on the back of mounting losses on subprime mortgage investments and related credit woes.
Just over a week ago the bank teetered on the brink when its finances almost evaporated as rival banks stopped trading with it, fearing the bank was close to collapse.
On Monday statements from the boards of directors of Bears Stearns and JP Morgan Chas approved the revised sale offer.
At the same time a separate statement from the Federal Reserve Bank of New York said it would now provide slightly less financing to underpin the deal, amounting to $29bn instead of an originally planned $30bn.
“This action is being taken by the Federal Reserve with the support of the treasury department to bolster market liquidity and promote orderly market functioning,” the US central bank said.
Under the plan, the Fed will release $29bn in taxpayer funds to help support the takeover in return for $30bn worth of Bear Stearns’ assets, including ailing mortgage-backed securities.
The portfolio of distressed Bear assets will be managed on behalf of the Fed which will accrue any gains from the portfolio.
Under the deal JP Morgan has agreed to carry the first $1bn in losses associated with the portfolio if its value declines.