How big is the bargain Mr Jamie Dimon, JPMorgan Chase's chief executive office (CEO) got when he snagged Bear Stearns for just US$2 a share ? The answer probably the best in years.
Few things noted in the bargain:
1) US$2 per share compared to a year ago its share sold for US$170
2) The deal includes US central bank to provide a US$30 billion (S$41b) guarantee for Bear Stearns troubled assets.
3) The price included Bear Stearns soaring Madison Avenue HQ, a six-year-old, 45-storey octagonal tower, with underground access to one of NY's busiest subway - worth US$1.5 billion.
With such a good deal, stock market investors delivered their verdict, boosting JPMorgan's stock by US$3.77, or 10/3%, to US$40.31 on Monday,17 March 2008. While the shares of other banks were pummelling north.
Few factors attributing to the success of this deal :
1) Bear Stearns CEO Alan Schwartz was forced to accept the deal due the prospect of bankruptcy and Fed anxious to prevent financial instability from spreading.
2) Mr Dimon has developed a reputation as a turnaround specialist after bouncing back from being outsted from Citigroup a decade ago. The good performance of JPMorgan, which posted a 6% rise in 2007 net profit. More importantly, largely unscarred by the credit crisis ravaging the financial sector.
3) With Bear Stearns acquisition, with added new businesses such as the profitable clearing and prime brokerages businesses, it is expected to add US$1 billion to the future profits, once fully integrated.
Is this not a tremendous bargain for JPMorgan shareholders ?
On the other hand, the shareholders, employees, investors & others of Bear Stearns, are asking and grilling Mr Schwartz, the CEO, how could it being sold for such a price ?
