- The Washington Times - Friday, May 30, 2008


Bear Stearns shareholders approved JPMorgan Chase’s $2.2 billion buyout, ending the saga of the 85-year-old pillar of Wall Street that crumbled under the weight of its own wagers on high-risk mortgages.

The tumult is far from over, however, for JPMorgan Chase & Co. - which now must mesh Bear Stearns’ maverick culture with its own - and the thousands of workers affected by the takeover.

Bear Stearns officially becomes part of JPMorgan Chase today, after a widely anticipated “yes” vote that won with 84 percent of the vote yesterday at Bear Stearns’ Midtown Manhattan headquarters. The meeting, led by Bear Stearns Chairman James Cayne and Chief Executive Officer Alan Schwartz, lasted less than 10 minutes, leaving some Bear Stearns’ shareholders angered by the speed at which the deal closed.

“They were up there drinking coffee paid with my money … and we lost our money overnight,” said Hannah Horgan, a Bear Stearns shareholder. “I have nothing left, and they were so calm.”

Back in January 2007, before mortgage defaults began clobbering banks and draining demand from the debt markets, Bear Stearns had traded at $171 a share. Now, JPMorgan is buying the firm for about $10 a share. The acquisition is resulting in thousands of layoffs at both Bear Stearns and JPMorgan.

“I think it’s a shame,” said Davis Edwards, who was loading the contents of his office into a sport utility vehicle parked outside Bear Stearns yesterday. Mr. Edwards worked as a mathematician for Bear Stearns for 11 years.

“This was a very prolific and lucrative firm,” Mr. Edwards said. “There’s a lot of good people in there.”

Bear Stearns and JPMorgan are not the only companies suffering job cuts - some 65,000 people have lost jobs at various banks, brokerages and lenders nationwide over the past 10 months.

But Bear Stearns got hit particularly hard. Its troubles can be traced to last June, when two of its hedge funds collapsed. Those fund casualties not only foreshadowed the investment bank’s own demise but also effectively launched the recent credit crisis by showing how much damage the slumping mortgage market could incur on the companies that bought, repackaged and sold the loans.

The deal’s approval comes as no surprise - since offering to take over the firm 2 1/2 months ago at the behest of the U.S. government, JPMorgan Chase & Co. has purchased nearly half of Bear Stearns Cos. stock, virtually guaranteeing shareholder approval. JPMorgan also upped its initial offer of $2 a share to $10 a share after outcry from Bear Stearns shareholders, many of whom are employees that JPMorgan intends to keep on staff.

But just as the world’s financial system has far to go in recovering from bad bets on debt, so does JPMorgan in its integration of Bear Stearns.

“Doing the deal is the easiest part,” said John Koob, who works in mergers, acquisitions and restructuring at Towers Perrin. “When the champagne cork pops, the real work now begins.”

JPMorgan shares rose 71 cents, or 1.6 percent, to $43.57 in afternoon trading, while Bear Stearns shares rose 17 cents to $9.55.

Most industry experts think the deal will prove to be lucrative for JPMorgan.

“Six months from now, who knows whether it will be good, bad, how things will be impacted. Six years from now, people will be saying this was a good decision,” said Sandler O’Neill & Partners bank analyst Jeffrey Harte.

JPMorgan has the backing of the New York Federal Reserve. The two parties said yesterday that the previously announced sale of $30 billion in Bear Stearns assets to JPMorgan will happen on or around June 26.

Meanwhile, the timing of the Bear Stearns buyout, while difficult because of the turbulent credit environment, might end up being ideal for JPMorgan. Towers Perrin and London’s Cass Business School recently released a study that found that historically, the deals creating the most value occur in post-peak years - such as this year.

Still, the acquisition process could be a rocky one for JPMorgan, which has suffered its own big losses in loan investments. The integration will involve not only taking on Bear Stearns’ distressed securities but also managing the 7,000 Bear Stearns employees coming aboard and retaining the clients of what was once the nation’s fifth-largest investment bank.

“It’s a fairly large, fairly complicated integration,” Mr. Harte said. “Cultural meshing can be a challenge.”

Mayiz Habbal, senior vice president of the securities and investments group at Celent, also noted that some 700 systems between the two firms need to be synchronized. It will likely take six months for JPMorgan to sift through Bear Stearns’ assets, he estimated, and about two years to integrate the people, systems and real estate.

Though the integration is in the early stages, on Wall Street, the downfall of Bear Stearns and its former chief Mr. Cayne - who reportedly spent much of his time on the golf course last year while his company hemorrhaged money - already is being regarded as one of the great American corporate tragedies.

“You’ll see books published,” Mr. Habbal said.

Arthur Ulrich, a shareholder, said he was fixated during the meeting on the faces of Bear Stearns’ outgoing management. He said former CEO and longtime chairman Mr. Cayne, who presided over the meeting, “looked rather disheveled.”

“He said he was sorry for what happened, but did not apologize for his actions,” Mr. Ulrich said.

Outside of Bear Stearns’ headquarters yesterday, people hawked $20 T-shirts with a caricature of Mr. Cayne playing the violin on the 19th hole of a golf course, while portrait artist Geoffrey Raymond displayed a 5-by-4-foot rendering of Mr. Cayne, known by some as “Jimmy.”

Mr. Raymond, who plans to sell the work on EBay at a starting bid of $3,500, allowed passers-by to scribble notes on the painting. Some of their comments: “Hubris - thy name is Jimmy,” and “Now you know what B.S. stands for.”

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