JPMorgan Chase & Co. (NYSE: JPM) CFO is giving a conference call now regarding its $2 a share deal to buy The Bear Stearns Companies (NYSE: BSC). JPMorgan thinks the Bear deal adds to its investment banking, prime brokerage, and commodities units and the price is so low that there is a margin for error.
Here are highlights:
- 12 to 18 months from now, the Bear Stearns prime brokerage, equity, and commodities businesses will add $1 billion to JPMorgan's earnings
- The Fed is making a $30 billion non-recourse loan to JPMorgan against Bear's mortgage-related assets. That means if the mortgage assets default, the Fed takes the hit, not JPMorgan
- JPMorgan is guaranteeing all the trading obligations of Bear Stearns
- JPMorgan plans to "deleverage" its balance sheet by $5 billion to $6 billion to maintain its 8% Tier One capital ratio
- JPMorgan will shed assets but its Fed financing will enable it to sell the assets "in an orderly fashion" rather than a "fire sale."
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
3-17-2008 @ 6:35AM
al coholic said...
the shareholders of Bear Stearns have been screwed. What do you bet the guys in upper management who ran the company into the ground will still get their golden parachutes and walk away unscathed.