JPMorgan Chase agreed to buy out beleaguered investment bank Bear Stearns at a cut-down price overnight.
The eleventh hour deal sees JPMorgan Chase exchange 0.05473 shares of its common stock per one Bear Stearns share. Based on the closing price of 15 March, the deal has a value of approximately $2 per share.
The Federal Reserve will fund up to $30bn of Bear’s less liquid assets, in addition to the financing it ordinarily provides through its discount window, protecting JP Morgan’s strong balance sheet.
Bear Stearns is now valued at just $236m, with its shares 98% down on the $158 high in April 2007.
Effective immediately, JPMorgan Chase will guarantee the trading obligations of Bear Stearns and its subsidiaries and will provide operational management oversight.
"JPMorgan Chase stands behind Bear Stearns," JPMorgan Chase chairman and CEO Jamie Dimon says.
"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."
Dimon says the deal will provide good long-term value for JPMorgan 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," he says.
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