Subprime Victim: JPMorgan to Acquire Bear Stearns in Fire Sale

Bear Stearns, hit hard by a cash crunch and bailed out Friday via a historic arrangement with the Federal Reserve and JP Morgan Chase & Co., will no longer stand on its own. JPMorgan said in a press statement released late Sunday evening that the beleaguered investment bank will be acquired for a mere $2 per share as part of a stock-swap deal.

Bear Stearns was trading just above $150 per share less than one year ago.

JPMorgan Chase will exchange 0.05473 shares of its common stock per one share of Bear Stearns stock, the company said, and an operating transition is nearly immediate.

“Effective immediately, Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations,” it said in a statement. Notably, the deal does not contain a so-called “material adverse change” clause that would allow JPM to back out if unforeseen problems emerge during closing.

Numerous media outlets had reported over the weekend that officials at both the Federal Reserve and the Securities and Exchange Commission had pushed for a deal before market open on Monday morning, in order to prevent further erosion of investor confidence amid a credit crisis that many analysts say has yet to hit its high note.

It may just have done so, with the fifth largest investment bank in the world felled both by market rumors and by the very loans that helped it rise to recent prominence.

“JPMorgan Chase stands behind Bear Stearns,” said Jamie Dimon, chairman and CEO 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.”

Bear Stearns CEO Alan Schwartz characterized the deal as “the best outcome for all of our constituencies based upon the current circumstances.”

JPMorgan’s winning bid came after earlier interest by a seperate bidding syndicate led by J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., the Wall Street Journal reported.

Housing Wire’s key sources suggested that Bear Stearns is not the only investment or commercial bank on shaky ground, and the key events that brought about this weekend’s fire sale have intensified industry speculation regarding other financial institutions with extensive exposure to the mortgage market.

“They’re the first, but I certainly don’t expect them to the be the last,” said one source, on condition of anonymity.

Disclosure: The author owned no positions in any publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.