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, which is run by Dimon, to buy Wall Street rival Bear Stearns Cos Inc.
“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 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.”
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 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.
Some saw the quick deal turnaround as a reason for caution. “The issue is what is Bear Stearns really worth,” said Jim Huguet, chief executive of Great Companies LLC, a Tampa, Florida, investment adviser. “I’m not sure you can answer that in two or three days.”
But Dimon has a good track record fixing up major banks. After being ousted from Citibank a decade ago, he became CEO of Bank One in 2000, fixing it up and eventually selling the bank to JPMorgan in 2004.
He has kept JPMorgan, which posted a 6 percent rise in 2007 net profit, largely unscarred by the credit crisis ravaging the financial sector.
JPMorgan, the No. 2 U.S. bank by market value, expects the acquisition, which includes Bear Stearns’ profitable clearing and prime brokerage businesses, to add $1 billion to earnings once it is fully integrated.
JPMorgan shares closed up $3.77, or 10.3 percent, at $40.31 on the New York Stock Exchange, where they traded as high as $41.09 during Monday’s session. Bear Stearns shares closed at $4.81, down 84 percent.
Reporting by Chris Reiter; editing by Jeffrey Benkoe, Gary Hill