Bear Stearns Marks End Of An Era

JP Morgan Chase completed its historic bid for Bear Stearns , effectively closing one of the more dismal chapters in the annals of Wall Street.
Now, the Street's attention turns to what JP Morgan Chase CEO Jamie Dimon will do for an encore.

JPMorgan Chase completed its historic bid for Bear Stearns Thursday, effectively closing one of the more dismal chapters in the annals of Wall Street. Now, the Street's attention turns to what JPMorgan Chase CEO Jamie Dimon will do for an encore.

Nearly two-and-a-half months after the extraordinary tie-up was revealed, 84% of Bear Stearns (BSC, Fortune 500) shareholders endorsed the proposed takeover at a special meeting.

The approval of the deal marks the start of a new phase for JPMorgan, ripe with both possibility and risk. With the acquisition, JPMorgan broadens its investment banking footprint but also inherits a big tab to clean up Bear's problems.

The purchase, unveiled on a Sunday evening in mid-March, heralded the end of the 85-year-old Bear Stearns and also demonstrated how vulnerable Wall Street had become as a result of the subprime mortgage meltdown.

Bear Stearns' troubles can be traced back 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 the offering to take over the firm, two-and-a-half months ago at the behest of the U.S. government; JPMorgan 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.

JPMorgan shares rose 96 cents, or 2.2 per cent, to $43.83 in midday trading, while Bear Stearns shares rose 20 cents to $9.58.Most industry experts believe the deal will be eventually a lucrative one 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.

Still, the acquisition process could be difficult for JPMorgan, which has suffered its own big losses in loan investments. The integration will not only involve taking on Bear Stearns' distressed securities, but also effectively managing the approximately 7,000 Bear Stearns employees coming aboard and retaining the clients of what was 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.

On Wall Street, the downfall of Bear Stearns and its former chief Mr. Cayne is already being regarded as one of the great American corporate tragedies. Outside of Bear Stearns' headquarters Thursday, people hawked $20 T-shirts with a caricature of Cayne playing the violin on the 19th hole of a golf course, while portrait artist Geoffrey Raymond displayed a five-by-four-foot rendering of Mr. Cayne.