WASHINGTON (Reuters) - The Federal Reserve Bank of New York said it would provide $29 billion in term financing to facilitate J.P. Morgan Chase & Co.’s acquisition of Bear Stearns and will form a privately managed company to oversee assets pledged as collateral.
In a statement, the New York Fed said it would take control of a $30 billion portfolio of assets through a limited liability company formed to manage the assets. J.P. Morgan Chase will bear the first $1 billion of any losses associated with the portfolio, and any gains will accrue to the New York Fed.
The financing would be made at the Fed’s primary credit rate for direct loans to banks at its discount window, currently 2.5 percent, the New York Fed said.
“This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning,” the New York Fed said in a statement.
BlackRock Financial Management Inc. will manage the portfolio under guidelines established by the New York Fed “designed to minimize disruption to financial markets and maximize recovery value,” the New York Fed said.
Reporting by David Lawder; Editing by Tom Hals