Investors have another worry: Fed intervention

By Jessica Hall and Megan Davies

PHILADELPHIA/NEW YORK (Reuters) - Investors in U.S. financial institutions have another risk factor to worry about -- intervention by the Federal Reserve.

While observers say the United States isn't approaching Russian standards yet, JPMorgan Chase & Co's (JPM.N: Quote, Profile, Research) planned takeover of Bear Stearns (BSC.N: Quote, Profile, Research) at $10 a share -- with Bear shareholders having little to say about it -- is a dissuader against investing in similar stocks.

"It's another of those watershed events which makes it clear to shareholders that their power is very limited," said Duke University Law School Professor James Cox. "It's somewhat fanciful, but it's also farcical, to have the perspective that shareholders have any sort of meaningful rights when the board of directors decides what to do."

JPMorgan side-stepped many customary merger practices in its revised offer for Bear Stearns, and the deal pushes the limit on some merger laws, according to some investment bankers and merger attorneys.

"As a basic investor in public companies, it makes us have to think about whether or not the companies we invest in will be subject to some sort of punitive action by the Fed, which creates uncertainty, which means risk, which means lower value," said an activist investor who asked to remain anonymous.

Although JPMorgan can say the Fed supports the deal and that Bear Stearns would have faced bankruptcy without a bailout, several lawsuits have already been filed and others are expected.

"Our whole system has folded in order to allow this deal to speed through," said one arbitrageur who declined to be named. "I also believe there is very little chance this gets overturned."

The deal arguably makes a shareholder vote moot.