Translated material
Resuscitation. Expensive
JP Morgan increases spending to revive Bear Stearns
American investment bank JP Morgan Chase & Co. will have to spend $9 billion tosave the bank it is acquiring, Bear Stearns , the main victim of the mortgage crisis today. Previously, it was planned to allocate only $6 billion to restore the business. In addition, JP Morgan may fire up to 4 thousand of its specialists, some of whom will be replaced by Bear Stearns employees. And although many market participants believe that JP Morgan has actually invested in real estate in the form of the Bear Stearns skyscraper, the management of the investment bank hopes that all costs will be returned a hundredfold. According to some experts, when the financial situation recovers, JP Morgan and Bank of America, which bought the mortgage company Countrywide, could become leaders in the mortgage sector.As you know, Bear Stearns, founded 85 years ago, became one of the first victims of the mortgage crisis that broke out in the United States last summer. Information about the bank's liquidity shortage led to the withdrawal of approximately $17 billion in assets and the bankruptcy of two hedge funds. But the US Federal Reserve found it necessary to save Bear Stearns. To this end, Ben Bernanke's office in March approved the purchase of the bankrupt bank by another financial giant - JP Morgan - and issued a loan guarantee in support of this transaction in the amount of $30 billion. At first, JP Morgan offered $2 per share to Bear Stearns. This amount was more than ten times less than the market value of the investment bank. However, JP Morgan subsequently increased the size of the offer to $10, valuing Bear Stearns at $1.5 billion. Bear Stearns management was forced to agree to these terms under pressure from the Federal Reserve, which sought to prevent bankruptcy of the bank and avoid panic in the market.
But the future of Bear Stearns was uncertain. His employees were looking for work, and the business could not develop until a clear turnaround plan was defined. Yesterday, JP Morgan Chief Executive Officer Jamie Dimon announced some parameters for the plan. “The increased cost forecast reflects the losses incurred by Bear Stearns this year, as well as the larger-than-expected amount of bad assets on its balance sheet,” he said, adding that the $9 billion cost estimate includes The latest data on losses, not taken into account in the initial forecast, could increase by at least another $1 billion.
In addition, according to The Washington Post, JP Morgan may cut about 4 thousand of its employees worldwide after merging with Bear Stearns. Half of those laid off will be replaced by Bear Stearns employees in similar positions, and 1-2 thousand people will lose their jobs due to the slowdown in the investment bank's activities during the crisis.
At the same time, the head of JP Morgan continues to be optimistic about the long-term prospects of the Bear Stearns takeover. However, he clarified that “the mission has not yet been completed,” and the success of the deal can only be judged in a few years.
According to billionaire Warren Buffett, who heads the investment company Berkshire Hathaway, the Fed did the right thing by organizing the purchase of Bear Stearns by JP Morgan: “If the regulator had not prevented the bankruptcy of Bear Stearns, more bankruptcies and increased panic would have followed. There were fears that a chain reaction would begin. If Bear Stearns had failed, it would have happened to someone else the next day. The situation would become very chaotic." Mr Buffett added that JP Morgan was a suitable buyer. Buffett himself was also offered to buy Bear Stearns, but he did not have enough funds at that time.
The purchase of Bear Stearns was not the only deal at a reduced price in the American market. Bank of America, which agreed to buy mortgage company Countrywide for $4 billion, is coming under pressure from some shareholders to abandon the deal under various pretexts. However, Bank of America spokesman Liam McGee said yesterday that the acquisition of Countrywide was a far-reaching deal as it would position the bank to become a leader in the mortgage lending sector.
World banks have already disclosed 80% of the losses incurred as a result of the collapse of the subprime mortgage market in the United States, which means that further revisions in the assessment of companies associated with such losses will be “minimal,” REUTERS reports, citing a Fitch Ratings report. Losses from the collapse of the subprime mortgage market, estimated at $1.4 trillion, could reach $400 billion, half of which would fall on banks, half on financial guarantors, insurance companies and hedge funds. Banks reported $165 billion in losses related to mortgage-backed bonds and other debt obligations, according to Fitch. Most of the losses were shared by financial institutions in Europe and the United States - $77 billion for each continent; Asian companies suffered $10 billion in losses. According to Fitch, about 60% of all losses were accounted for by four banks: Citigroup, Merrill Lynch, UBS and IKB.