JPMorgan tightens Bear trade pact, building deal

By Joseph A. Giannone

NEW YORK (Reuters) - JPMorgan Chase, which on Monday raised its March 16 takeover offer for Bear Stearns five-fold to $10 a share, also revised its promise to guarantee Bear trades and tightened its hold on Bear's new Manhattan headquarters building.

The new guaranty agreement is designed to boost the market's confidence in doing business with Bear's trading desks, which have been quiet in recent days. The agreement also makes clear JPMorgan would not back up the trading business if Bear's board chooses a rival acquirer.

"If Bear's board recommends a competing proposal, the guaranty would cease to exist for all obligations then outstanding or created in the future," JPMorgan said in a note explaining the new pact.

Under the original guaranty agreement, JPMorgan assumed responsibility for Bear's trading obligations until the deal's completion. That support was vital since many traders grew convinced two weeks ago Bear was likely to go bust, so they took their business and their cash elsewhere.

Under the new agreement, JPMorgan's support for Bear trades falls away only if Bear recommends a topping bid from a more credit-worthy buyer.

Sources familiar with the deal say it is unlikely that Bear could find someone who meets the criteria of higher credit standards than JPMorgan, which is among a very few banks to have escaped major damage from the credit crunch.

The new agreement, by asserting it will remain in place except under some unlikely circumstances, is expected to give traders greater confidence in doing business with Bear.

Also, few bidders would likely have the same level of support from the Federal Reserve.

Meanwhile, JPMorgan took other steps Monday to close the door on rival bidders and expedite its own deal.

Notably, JPMorgan maintained an option to acquire Bear's valuable midtown headquarters for a below-market $1.1 billion if the bank were outbid by another buyer or if Bear went into liquidation.

Under the new agreement, if the deal does not go through for any reason, Bear Stearns still gets to buy the building.

(Editing by Gary Hill)