JPMorgan Chase is acquiring Bear Stearns, which was reportedly on the verge of collapsing as a result of the credit crunch, for just US$236 million.
The U.S. Federal Reserve will provide special financing in connection with the transaction and has agreed to fund up to $30 billion of Bear Stearns’s less liquid assets.
JPMorgan is getting Bear Stearns at a steep discount of just $2 a share, $28 dollars below where the stock closed on Friday and well off its 52-week high of $159.36.
Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. Other than shareholder approval, the closing is not subject to any material conditions. The transaction is expected to have an expedited close by the end of the calendar second quarter 2008. The Federal Reserve, the Office of the Comptroller of the Currency and other federal agencies have given all necessary approvals.
Bear Stearns’s fortunes took a turn for the worse last week as some banks began to demand additional collateral from the company and spurned offers of credit swaps. As rumours about the investment bank’s viability spread, clients began to withhold business and withdraw funds, sparking a run on the bank. Bear Stearns executives did their best to soothe client’s fears, but the panic soon spread to lenders and counterparties.
At about the same time the Bear Stearns deal was announced Sunday night, the Federal Reserve cut its lending rate to banks to 3.25% from 3.50% and created another lending facility for big investment banks.
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