JPMorgan to close or spin-off most Bear funds

By Joseph A. Giannone

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) expects to liquidate or spin off much of the asset management arm of Bear Stearns Cos Inc BSC.N after it takes over Bear next month, people familiar with the situation said Thursday.

Bear Stearns Asset Management (BSAM), which during the past year generated more bad news than revenues, has about 400 employees and managed $39 billion in investments at the end of February.

On Monday, JPMorgan Chief Executive Jamie Dimon told a UBS investor conference he expected the bank would close down "big parts of Bear's asset management business."

Ultimately, the sources said, roughly one-third of Bear's asset management employees are expected to get job offers from JPMorgan. Some funds with strong track records will be spun off to their management teams.

JPMorgan and Bear Stearns declined to comment.

Meanwhile, JPMorgan, which is eager to add on Bear's brokerage business, will shut private client brokerage operations in London and Hong Kong over the next two months. About 10 brokers plus support staff in London and about eight employees in Hong Kong will lose jobs as a result, the sources said.

The moves mark a change in strategy since March 16, when JPMorgan cited Bear's "broad asset management capabilities" as a selling point for its hastily arranged fire-sale takeover.

BSAM was at the epicenter of last year's subprime mortgage meltdown.

On Monday, Dimon said JPMorgan expected $300 million in the second-quarter charges "mostly related to closing down big parts of Bear Stearns Asset Management" and from the expense of trying to retain Bear's 470 brokers.

People familiar with the situation said weak performing funds would be shut down and liquidated, while a few would make the move to JPMorgan's $1.3 trillion asset management arm.

Some of the more successful funds, such as Melissa Ko's $1.2 billion Emerging Markets Macro Fund, will likely be spun off to their management teams.

BSAM has been buffeted by both internal and external events over the past year. First star money manager James O'Shaughnessy left to launch his own firm and took $8.8 billion of BSAM assets with him.

The unit also was at the center of the subprime mortgage crisis that continues to roil financial markets. BSAM managed two risky subprime mortgage funds that struggled before finally going bankrupt last July.

Fund investors are suing Bear over the meltdown and accuse it of misrepresenting these funds as safe investments. The collapse also tarnished Bear's reputation as a savvy risk manager.

JPMorgan is eager to take on Bear's private client brokerage business that generated $161 million in revenue and increased client assets during the first quarter.