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Deal agreed for troubled US bank

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17/03/2008

US investment bank JPMorgan Chase & Co. is to acquire Bear Stearns in a deal designed to prevent the latter’s financial problems leaking further into the financial sector.

The stock for stock deal values Bear Stearns at $236m or $2 per share, with JP Morgan Chase exchanging 0.05473 of its own shares per one share of the troubled bank’s stock.

The deal was finalised yesterday (16 March 2008) after Bear Stearns, one of the US’s largest investment banks, was forced to seek emergency funding from the Federal Reserve. After recent rumours that the bank was in trouble, institutional investors withdrew funds from the bank, which was also one of the largest players in the US mortgage market.

With immediate effect, JP Morgan Chase will guarantee the trading obligations of Bear Stearns and its subsidiaries and will provide management oversight of its operations. The Federal Reserve has also agreed to fund up to $30bn of Bear Stearns’s less liquid assets, in addition to the financing it usually provides in such situations.

Jamie Dimon, chairman and chief executive officer of JP Morgan Chase, said: “The transaction will provide good long-term value for JP Morgan Chase shareholders. This acquisition meets our key criteria: we are taking reasonable risk, we have built in an appropriate margin for error, it strengthens our business, and we have a clear ability to execute.”

Melanie Mitchley, director at cedit reference agency Callcredit, commented: “This latest development is an opportunity to encourage all consumers who both save and borrow to assess their current financial health, and crucially, not take on additional credit they can’t afford.

“In an attempt to avoid debt, consumers need to move away from the ‘buy now, pay later’ attitude and move towards the ‘save now, buy later’ mentality. Taking a few simple steps such as reviewing a copy of their credit report will allow consumers to take control of their own financial futures.”

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