NEW YORK, March 24: JPMorgan Chase hiked its offer on Monday for Bear Stearns to $10 per share, or over $1 billion, quintupling a fire-sale price agreed on a week earlier for the distressed investment bank.
JPMorgan Chase’s increased offer comes after some Bear Stearns shareholders had angrily criticised an initial offer for the Wall Street bank and brokerage which valued it at a paltry $2 per share or $236 million.
The new offer dramatically hiked the price announced on March 9 in a deal approved by the Federal Reserve to avert a feared collapse of Bear Stearns which had faced a cash crunch due to soured mortgage investments.
Some analysts had pointed out that Bear Stearns’ corporate headquarters in New York alone, aside from its other business assets, was worth around $1 billion.The boards of directors of both banks approved the amended agreement which is five times the value of the original offer -- according to a joint statement issued shortly after the stock market opened for trading.
In a separate statement, the Federal Reserve Bank of New York said it would now provide slightly less financing to underpin the deal, amounting to$ 29 billion instead of an originally planned $30 billion.
Under the plan, the Fed will release $29 billion in taxpayer funds to help support the takeover in return for $30 billion worth of Bear Stearns assets, including ailing mortgage-backed securities.
The portfolio of distressed Bear Stearns’ assets will be managed by BlackRock Financial Management on behalf of the Fed which will accrue any gains from the portfolio.
JPMorgan Chase has agreed to bear the first $1 billion in any losses associated with the portfolio.
“We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise,” said Jamie Dimon, JPMorgan Chase’s chairman and chief executive.
The new deal was announced as fears mounted that a significant number of Bear Stearns shareholders, including the bank’s employees, would seek to block a deal valuing the bank at just $2 a share.
Many employees faced losing significant sums on their investments in the bank if the deal had gone through at just $2 a share. Bear Stearns shares were trading at well over $100 last year, but plummeted sharply as its financial woes increased in recent months.—AFP
