Wednesday, 30 July 2014
Last updated 13 hours ago
Mar 17 2008 | 1:28am ET
JPMorgan Chase has agreed to buy Bear Stearns for a mere $240 million, or $2 per share, which amounts to less that 7% of the firm’s closing share price on Friday. The agreement, which is expected to close in 90 days, would end the Wall Street giants 85 years of independence.
Last week, clients—including many of the firm’s prized hedge fund customers—pulled $17 billion from Bear Stearns. JPMorgan then provided a round of rescue financing, placing the bank in a strong position for a final takeover deal.
“JPMorgan Chase stands behind Bear Stearns,” JPMorgan CEO James Dimon said in a statement released late Sunday. “Bear Stearns’ clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns’ counterparty risk.''
However, not all of Bear Stearns’ clients, especially those utilizing the firm’s prime brokerage services, feel reassured. One $500 million hedge fund that pulled its money from Bear Stearns two weeks ago told FINalternatives that it has no plans to prime with the new Bear Stearns/JPMorgan in the near future. “We’re going to wait to see how this all plays out,” he said.
Last week, traders in London, including those at Commerzbank, Royal Bank of Scotland and JPMorgan, were reportedly told to stop doing business with Bear Stearns. At the same time, large hedge funds—many of which utilize up to 10 prime brokers—moved their assets to other firms in preparation for a possible bankruptcy.
But while Bear Stearns was seeing clients run for the exits, other prime brokers were being bombarded with inquiries.
“We have been working the entire weekend fielding calls from asset managers and people concerned with what has been transpiring [at Bear Stearns],” said Mike Murray, a partner at Shoreline Trading Group. He explained that the largest concern of hedge funds is what to do if their custodian fails, and how they would be able to continue to transact in the marketplace. “[Asset managers] are relieved to know that we have custodial relationships with Goldman Sachs and Credit Suisse,” he added.
But while hedge funds may be keeping their distance from Bear Stearns’ prime brokerage services for the time being, analysts say that the unit, which generated $1.2 billion in revenue last year and was the third biggest after Goldman Sachs and Morgan Stanley, may actually be the only piece of the Wall Street firm that has any value left.
“As bad as things are at Bear Stearns, this is still a franchise with a lot of value, particularly the prime brokerage business, which is what JPMorgan is after,” William Fitzpatrick of the $1.6 billion asset management firm Optique Capital Management told Bloomberg News. “That's the crown jewel, and that would fit into JPMorgan's business extremely well.”
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…