JP Morgan buys Bear Stearns after receiving Fed guarantee
Late yesterday evening, JP Morgan's chief financial officer, Mike Cavanagh, told investors the takeover made strategic sense for JP Morgan, and would involve $6 billion in transition costs - although, he said, when fully integrated Bear Stearns should add around $1 billion to the bottom line.
The deal was backed by the US Federal Reserve Bank, which offered to take on up to $30 billion of Bear Stearns' "less-liquid assets". This is comparable to almost all its gross mortgage exposure, which includes $16 billion of commercial mortgage-backed securities, $15 billion of prime and alt-A mortgages, and $2 billion of subprime mortgages. Cavanagh said the facility was in place to ensure "an orderly process" of deleveraging as the bank sells off its less-liquid assets.
The deal valued Bear Stearns at $2 a share for a total of $236 million. All the regulators have already approved the deal, JP Morgan said, and it should close by the end of June.
See also: Fed bails out Bear Stearns
Central banks act again to preserve liquidity
Bank practices undermined liquidity, says BIS
Cayne bows out of Bear Stearns
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