JPMorgan Chase won approval of its purchase of Bear Stearns,shuttering an 85-year-old firm whose collapse ranks along with Drexel Burnham Lambert as one of the biggest in Wall Street history.
Founded in 1923 by Joseph Bear and Robert Stearns at 100 Broadway in New York,Bear Stearns survived the Great Depression and first sold shares to the public in 1985,under then-CEO Alan ``Ace''Greenberg. Now,the company's brand name will all but vanish,and about 60% of Bear Stearns's 14,000 employees are likely to be out of a job.
Bear Stearns shareholders endorsed the sale during a 10- minute meeting today on the second floor of the firm's Madison Avenue headquarters. The gathering was chaired by former Chief Executive Officer James''Jimmy''Cayne,who was replaced by Alan Schwartz in January.
''I personally apologize for what has happened,''Cayne,74,told shareholders,according to a person who attended the meeting.''It's a sad day.''
About 84% of Bear Stearns's shareholders voted to approve the takeover,JPMorgan said. As of May 9,JPMorgan held 49.5% of the $US2.3 billion ($A2.4 billion) company,once the fifth-largest US securities firm,Bloomberg data show. The deal is expected to close on May 30.
Separately,the Federal Reserve said today it will take control of a $US30 billion portfolio of Bear Stearns assets on or about June 26,completing an agreement reached with JPMorgan Chief Executive Officer Jamie Dimon two months ago to aid the sale. The central bank hired BlackRock Inc. to manage and sell the assets.
Venting
Some Bear Stearns employees and shareholders vented their frustration today on a portrait of Cayne placed by an artist outside the Bear Stearns building. Comments included:''Dear Jim Up Yours!,''''My Blood is Boiling,''''Should we raise more capital?''and''Opening Bid:One Dimon.''
The deal faces lawsuits from shareholders who sought more than the $US10 a share JPMorgan agreed to pay in the all-stock deal. They say JPMorgan's stake unfairly skewed the vote.
''Cayne offered his apology,but to me that's not enough,''said Wayne Kaniper,a shareholder from Trenton,New Jersey who said he turned 76 today. He bought his Bear Stearns shares about a year ago. The stock fetched as much as $US173 in January 2007.
Bear Stearns joins a list of vanished Wall Street names that include First Boston,Salomon Brothers,Dillon Read and Donaldson Lufkin&Jenrette. The one remaining Bear Stearns vestige will be its retail brokerage,which will keep the brand and operate as a separate unit in JPMorgan's asset management division.
'Not Enough'
The risk-taking culture that Bear Stearns represented is probably now gone for good,said Charles Geisst,a finance professor at Manhattan College in New York and author of ``100 Years on Wall Street.''
''Hopefully the surviving firms will manage their risks better and won't leave it to individual traders,''he said.''As they sink into the sunset,as I suspect they will,that model they embody will as well.''
The sale,announced in March,capped an eight-month slide in the company's fortunes that began last July with the collapse of two Bear Stearns hedge funds that invested in securities linked to subprime mortgages. Those failures caused investors to doubt the value of any asset linked to the mortgage market,Bear Stearns's biggest business.
Fed Loan
On March 14,the Fed agreed to lend $US13 billion to Bear Stearns through JPMorgan to prevent the collapse of the firm,which faced an exodus of clients and lenders. Facing a potential bankruptcy,Schwartz was forced to accept a $US2 a share offer from JPMorgan to buy the company,two days after he told investors that the company's ``liquidity cushion''was sufficient to weather credit-market losses.
JPMorgan later agreed to raise the price to $US10 a share under pressure from Bear Stearns shareholders,many of whom were employees. JPMorgan agreed to take the first $US1 billion in losses from the Fed on Bear Stearns's assets and negotiated to buy 39.5% of the company to ensure the deal would pass.
Each share of Bear Stearns will be exchanged for 0.21753 of a share of JPMorgan stock. That values the deal at $US9.43 a share,based on JPMorgan's closing price of $US43.36 yesterday.
Shareholders of record as of April 18 were allowed to vote in the special meeting today. JPMorgan added 82 cents to $US43.68 as of 1:25 p.m. in New York Stock Exchange trading.
Headquarters
Bear Stearns's profit exceeded $US2 billion in 2006,yet the price JPMorgan initially agreed to pay was about one quarter the value of the headquarters building. The 1.2 million-square-foot,45-story structure built in 2001 is worth about $US1.2 billion,based on the average $US1,000 per-square-foot that comparable office space in the city is currently fetching.
JPMorgan said at the time the deal was announced that it would add to its businesses,including energy and commodities,with the acquisition. It also gives JPMorgan a prime brokerage,a unit that process trades and provides loans to hedge funds and other institutional clients.
Dimon said May 12 his firm expected $US800 million to $US1.1 billion in additional earnings by the end of 2009 from its purchase. The majority of the earnings could come from the prime brokerage,a business JPMorgan was eager to acquire,he said.
Bloomberg