JPMorgan closes in on buying Bear Stearns: WSJ : US Business

By Dan Wilchins and Joseph Giannone

NEW YORK (Reuters) - Bear Stearns Cos Inc is hoping to announce a deal to sell itself to JPMorgan Chase & Co before Asian markets open on Monday, the Wall Street Journal reported on Sunday, as the investment bank struggles to save itself.

Bear Stearns, the fifth-largest U.S. investment bank, could sell itself for around $2.2 billion, the newspaper reported. That would amount to less than $20 a share.

The low sale price, equal to about two-thirds the company's $30.85 closing share price on Friday, signals just how dire the situation is for the 85-year-old investment bank.

Bear Stearns' cash reserves were drained by nervous trading partners Thursday, and it received a bailout from the Federal Reserve on Friday. The lifeline, extended through JPMorgan Chase, was intended to give Bear 28 days to get its house in order.

But even with that lifeline, customers fled on Friday, and will likely continue to do so without news regarding takeover talks, analysts said.

"They have to announce something sooner rather than later," said Jim Huguet, portfolio manager at Great Companies LLC in Tampa, Florida, which does not own Bear Stearns shares.

JPMorgan Chase, the third largest U.S. bank and one of the few global banks relatively unscathed by the credit crunch, is looking to limit some liabilities in acquiring Bear Stearns, the Wall Street Journal reported.

Bear Stearns has complicated mortgage bond and credit derivative assets on its balance sheet, and valuing them could be difficult. Bear may also face legal liability from soured subprime mortgage bonds it sold, analysts said.

Those complex liabilities could slow down the progress of any talks, which is why one analyst in Boston, speaking on condition of anonymity, said he suspects Bear Stearns will soon announce it is in advanced talks with a buyer rather than actually signing a deal.

Private equity firm JC Flowers & Co, which has snapped up distressed banks, also is in the mix, the New York Times reports. Representatives for JPMorgan, Bear Stearns, and Flowers were not immediately available for comment.

CRISIS OF CONFIDENCE

JPMorgan, an institution that has stepped in to rescue banks for more than a century, at the least is expected to purchase Bear's sizable prime brokerage unit, a person familiar with the situation told Reuters on Friday.

Investors lost confidence in Bear in recent weeks, because it is the smallest of the major investment banks and, at the same time, renowned as an aggressive trader in credit and mortgage markets. Bear generates a much bigger percentage of its revenue from the U.S. fixed income markets than its competitors.

In a classic run on the bank, traders last week stopped doing business with Bear because they feared the firm might go bust, draining cash and making a collapse all the more likely.

Given that lack of confidence, it would be more difficult for Bear to remain in business and rebuild, even if can raise capital or minimize its losses.

But the Federal Reserve is unlikely to allow Bear to fail, for fear it could trigger a chain reaction of failures. The investment bank has massive positions in interest-rate swaps, credit default swaps, and other derivatives with all of Wall Street. If it failed, a number of other banks could be hurt and investor confidence in the already fragile financial system could be further shaken.

Following previous crises, famous firms such as Kidder Peabody, Salomon Brothers and First Boston were forced to seek buyers with robust balance sheets.

Bear last week accelerated plans to announced its first quarter results to Monday, at which time Bear would also disclose it cash position, capital levels and exposures to hard-hit assets.

Analysts on average expect Bear's first quarter earnings to plunge by more than half to $1.19 a share from $3.82 a share a year ago, and revenue to shrink to $1.4 billion from $2.5 billion, Reuters Estimates said on Sunday.

(Editing by Tim Dobbyn)

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