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New deal for Bear Stearns

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by Kay Mitchell

A new deal for Bear Stearns has been offered by JP Morgan Chase. Under the new terms, JP Morgan Chase has increased its offer to $10 (£5) a share, from the original offer of $2 a share.

JP Morgan Chase has also agreed to change the guarantees it is receiving from the US Federal Reserve. The investment bank will now take on the first $1 billion of any Bear Stearns’ losses and the Federal Reserve will fund the remaining $29 billion.

Furthermore, JP Morgan Chase will buy 95 million newly issued Bear Stearns shares, or 39.5% of the bank and have secured the backing of Bear Stearns’ Chairman James Cayne, owner of a 3% stake.

Including the new shares, the latest offer values Bear Stearns at approximately $2.1 billion – still a fraction of its value prior to its near collapse almost 2 weeks ago.

The original offer of $2 a share infuriated some Bear Stearns shareholders who said the bank was being sold at a bargain price. It is hoped the revised offer might calm shareholders.

JP Morgan chase are in a much stronger position to push through the take-over following the purchase of the extra shares.

However, in spite of the improved offer, analysts say there will still be doubts. James Ellman, Portfolio Manager at Seacliff Capital in San Francisco, said clearly this increases the chance the deal goes through, but there are still going to be employees and shareholders unhappy with $10 a share.

Bear Stearns hit problems when other banks refused to lend it money over concerns that it had too many bad debts due to the sub-prime mortgage crisis.

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News posted: March 25, 2008

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