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JPMorgan Chase to acquire Bear Stearns as Fed steps in with USD 30 billion funding for ‘less liquid’ assets

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In a move designed to calm the markets ahead of trading today, JPMorgan Chase (NYSE: JPM) is acquiring the crippled Bear Stearns Companies Inc for USD2 per share, a ninety per cent discoun

In a move designed to calm the markets ahead of trading today, JPMorgan Chase (NYSE: JPM) is acquiring the crippled Bear Stearns Companies Inc for USD2 per share, a ninety per cent discount to its price last week, guaranteeing the trading obligations of Bear Stearns and its subsidiaries and providing management oversight for its operations.

JPMorgan Chase Chief Executive Officer Jamie Dimon has bought Bear Stearns, previously the biggest underwriter of US mortgage bonds and a leading prime broker to hedge funds, for a bargain price – USD240 million – after a run on Bear Stearns that saw clients withdrawing USD17 billion in just two days.

In a series of moves made over the weekend, the US Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies worked to prevent the prospect of bankruptcy and gave all necessary approvals and funding for the purchase by JPMorgan Chase.

In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to USD30 billion of Bear Stearns’ less liquid assets.  

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

"JPMorgan Chase stands behind Bear Stearns," says Jamie Dimon, Chairman and Chief Executive Officer of JPMorgan Chase. "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 adds: "This transaction 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."

Alan Schwartz, President and Chief Executive officer of Bear Stearns, says: "The past week has been an incredibly difficult time for Bear Stearns. This transaction represents the best outcome for all of our constituencies based upon the current circumstances," says.

The transaction is expected to be ultimately accretive to JPMorgan Chase’s annual earnings. "This transaction helps us fill out some of the gaps in our franchise with manageable overlap," says Steve Black, co-CEO of JPMorgan Investment Bank.

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