JPMorgan's Dimon Snags a Bargain in Bear Stearns

By Chris Reiter

NEW YORK (Reuters) - Jamie Dimon's grab of Bear Stearns may turn into one of the biggest bargains in recent years.

Banking experts were almost unanimous in their appraisal of the move by JPMorgan Chase & Co (JPM.N), which is run by Dimon, to buy Wall Street rival Bear Stearns Cos Inc BSC.N.

"It's my opinion that this represents a great bargain for JPMorgan," said Samuel Hayes, emeritus professor of finance at Harvard Business School.

"Bear Stearns was, until this year, one of the smartest and most profitable investment banks in the world," said Hayes. "This could be a real money-spinner for JPMorgan."

JPMorgan agreed on Sunday to buy Bear Stearns, which was slammed by a sudden cash crunch, for about $2 a share -- about 90 percent below its Friday close. The all-stock deal values the company, recently ranked as the No. 5 U.S. investment bank, at about $236 million.

Brad Hintz, an analyst with Sanford Bernstein, estimated that a breakup of Bear Stearns would fetch $7.7 billion. "This is a tremendous bargain for JPMorgan shareholders," he said in a note.

The deal will cost JPMorgan more than just stock. The bank is setting aside $6 billion to cover deal-related costs such as litigation and severance, putting the total cost much higher.

"Even with an estimated $6 billion of transaction costs, the deal economics look very compelling," said Citibank analyst Keith Horowitz.

"From a strategic perspective JPMorgan is getting several business lines from Bear that are very complementary to its investment bank," Horowitz said in a note to clients.

Dimon, JPMorgan's chairman and chief executive, has developed a reputation as a turnaround specialist since bouncing back from being ousted from Citigroup Inc (C.N) a decade ago.

He'll need those skills to integrate cash-strapped Bear Stearns into JPMorgan's financial empire, which includes car loans, credit cards, and investment banking.

"Dimon negotiated well," Morgan Stanley analyst Betsy Graseck said in a note, but added that the deal "does not come without risk."

SHARE SURGE

Investors cheered Dimon's move, boosting JPMorgan's stock as much as 12.5 percent despite a broader sell-off in the financial sector. The Standard & Poor's financials index .GSPF fell 1.4 percent, marking its lowest level in almost five years.

The deal, which includes $30 billion in special Federal Reserve financing for Bear Stearns' less liquid assets, followed an emergency funding package on Friday for Bear Stearns by JPMorgan through the Federal Reserve after its liquidity deteriorated significantly.