Bear Stearns buyout by JP Morgan
JP Morgan and the Federal Reserve acted in a buyout to prop up Bear Stearns falling investment bank investments. Bear Sterns was disproportionally hit by the credit crunch, causing it to nearly go bankrupt. An agreement between JP Morgan and the Federal Reserve to buy up the banks assets and protect its clients and borrowers.
Bear Stearns had profited heavily from mortgage backed securities until the real estate market as a whole went upside down. Now the bank is stuck with a possible $30 Billion portfolio of bad loans. JP Morgan put in an offer to buy the company with the insurance of the Federal Reserve which plans to back JP Morgan from $30 Billion in potential losses arising from the credit crunch.
JP Morgan couldn’t possibly get a better deal out of the occasion. The investment for JP Morgan is nearly risk free, as the Federal Reserve plans to back any losses that the portfolio incurs. JP Morgan owes the Fed virtually nothing for their service, just that it has to manage the portfolio of debt wisely. Bear Stearns will get a 28 day loan from JP Morgan with the guarantee that it will not incur any losses on the investment.
JP Morgan now has the ability to gain up to $30 Billion in investment assets while being completely insured from loss. The Federal Reserve and dollar-owners around the world will pay for any potential losses through inflation, as the FED as guaranteed the loan from loss. While this might make JP Morgan look much better on paper, there is still plenty of consolidation yet to happen in the investment banking sector. No entry yet.
