JP Morgan buys Bear Stearns after receiving Fed guarantee

JP Morgan, the middleman in the Federal Reserve's discount-window attempt to prop up Bear Stearns on Friday, will buy the troubled bank at a knockdown price.

Late yesterday evening, JP Morgan's chief financial officer, Mike Cavanagh, told investors the takeover made strategic sense for JP Morgan, and would involve $6 billion in transition costs - although, he said, when fully integrated Bear Stearns should add around $1 billion to the bottom line.

The deal was backed by the US Federal Reserve Bank, which offered to take on up to $30 billion of Bear Stearns' "less-liquid assets". This is comparable to  almost all its gross mortgage exposure, which includes $16 billion of commercial mortgage-backed securities, $15 billion of prime and alt-A mortgages, and $2 billion of subprime mortgages. Cavanagh said the facility was in place to ensure "an orderly process" of deleveraging as the bank sells off its less-liquid assets.

The deal valued Bear Stearns at $2 a share for a total of $236 million. All the regulators have already approved the deal, JP Morgan said, and it should close by the end of June.

See also: Fed bails out Bear Stearns 
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