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JPMorgan Chase will pay five times as much as originally planned for its stricken rival Bear Stearns, in an attempt to pacify furious shareholders and devastated employees.
Jamie Dimon, JPMorgan chief executive, decided yesterday to raise the value of his offer from a token US$2 ($2.5) per share to US$10 after a week of pressure which included legal threats from investors and a tongue-lashing from Bear staff at his first meeting as their putative new boss.
The original deal was brokered by the Federal Reserve to prevent the collapse of Bear Stearns triggering a full-blown banking crisis, but it immediately attracted criticism for handing Dimon the assets of Wall St's fifth biggest investment institution at too generous a price.
JPMorgan shares soared 25 per cent last week as investors decided it had got a bargain, while Bear shares remained above the value of the bid, reflecting the expectation that its shareholders could vote against the deal and seek a better alternative.
JPMorgan said it would quintuple the value of the offer, but it also said Bear would immediately sell it new shares that gave it control over 40 per cent of the company, making it much more likely it will get a "yes" vote.
"The substantial share issuance to JPMorgan Chase was a necessary condition to obtain the full set of amended terms, which in turn were essential to maintaining Bear Stearns' financial stability," said Alan Schwartz, Bear chief executive.
JPMorgan executives are onsite at Bear's midtown Manhattan headquarters, directing its trading operations, and a drawn-out battle for support of the deal threatened to complicate Dimon's efforts to integrate Bear's prime brokerage business and other operations into the JPMorgan group.
"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise and bring more certainty for our respective shareholders, clients, and the marketplace. We look forward to a prompt closing and being able to operate as one company," he said.
It was unclear if last night, however, whether Dimon had done enough to guarantee an easy passage for the deal. Bear was trading at US$12.14, above the value of JPMorgan's all-share offer, which rose to US$10.31 as JPMorgan shares jumped.
Bear all but collapsed when panicking clients and trading partners began to pull their business, causing a liquidity crisis. Within a matter of days, a firm that had more than US$80 per share of assets on its books was unable to continue operating.
Many shareholders, including the British billionaire Joe Lewis, were furious that the JPMorgan offer did not reflect the value of Bear's assets. Lewis, whose losses total US$1.2 billion, said he was opposed to the deal and was exploring his options, which included soliciting a rival bid or challenging the deal in the courts.
There was an amendment to the deal between JPMorgan and the Fed, which originally promised to guarantee US$30 billion of Bear Stearns' riskiest assets and which prompted charges it was bailing out a firm that should never have taken on such risk.
JPMorgan will swap the US$30 billion of assets for more easily tradable securities, and the Fed will hire an outside fund manager to hold the portfolio.
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8000 JOBS GO
More than 8000 staff will face the axe at Bear Stearns worldwide once the stricken US investment bank is acquired by JPMorgan next month.
Wall St analysts believe more than half of Bear Stearns' employees will be made redundant, with about 600 jobs at risk in London, where the company employs 1350 people. JPMorgan declined to comment.
The jobs fall-out from the liquidity squeeze is expected to worsen. Senior executives of JPMorgan met Bear Stearns staff last week to outline severance terms and highlight incentives to employees they want to retain, in a move designed to prevent them being poached by rival banks.
Experts warn that redundancies across the global financial services industry are rocketing. The Experian research agency predicts that the tally this year could hit 180,000.
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