J.P. Morgan and Bear Stearns’ marriage won’t be cheap. It will cost the banking giant $9 billion to clean up the losses and bad assets on Bear Stearns’ balance sheet and pay for layoff costs and litigation arising from its cut-price takeover. That’s $3 billion more than J.P. Morgan originally estimated and they expect the final total could end up being up to $1 billion higher or lower.
Since the takeover, J.P. Morgan has also lifted its offer price for Bear from $2 to $10 per share; thus valuing Bear at $1.5 billion and easing some investor and employee anger over the previous cutthroat prices. Still, J.P. Morgan is optimistic about the long-term benefits of the takeover and argues that the fraction of Bear’s value that they’re paying is necessary to offset Bear’s losses stemming from mortgage-related securities and other bad assets.
Despite the higher takeover cost and further Bear losses, J.P. Morgan still expects Bear to boost their second-quarter earnings by $1 billion and its total equity by $2 billion – below previous estimates of a $5 billion equity contribution. From 2009, Bear should contribute more than $1 billion a year to J.P. Morgan’s profit.
Separately, J.P. Morgan has also disclosed that it is facing potential civil charges from the SEC as part of a probe into the bidding for municipal bonds.
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