Job loss fears loom over Bear Stearns' staff

Discussion in 'Wall St. News' started by S2007S, Mar 18, 2008.

  1. S2007S


    Job loss fears loom over Bear Stearns' staff
    Uttara Choudhury / DNA MONEY
    Tuesday, 18 March , 2008, 10:26
    Last Updated: Tuesday, 18 March , 2008, 10:52

    New York: In a stunning buyout plotted over the weekend with a helping hand from the Fed, JPMorgan Chase & Co said it was acquiring teetering Wall Street investment bank Bear Stearns for a bargain-basement price of $2 a share, or $236.2 million. Budget 2008-09

    JPMorgan announced on Sunday that it is taking over Bear Stearns after the board of directors of both companies unanimously approved the deal. At Friday’s close, Bear Stearns’s stock-market value was still flying at $3.54 billion, but the transaction now fixes the value of Bear Stearns at a meagre $236.2 million based on the number of shares outstanding as of February 16.

    “During a crisis of confidence, earnings, book value and liquidity don’t matter much,” Prashant Bhatia, an analyst at Citigroup, wrote in a note to investors. He spelt out how assailable even the biggest Wall Street brokerage firms are to the spiraling credit crunch, saying; “Clients and counterparties vote with their money and if confidence breaks down rapid deterioration will likely follow.”

    The US Federal Reserve not only gave the green-light to the all-stock buyout but made the takeover risk-free and hugely attractive for JPMorgan by guaranteeing up to $30 billion of the troubled mortgage and other assets that got Bear Stearns into an almighty mess.

    The takeover agreement signals an abrupt end for 85-year-old Bear Stearns and puts a question mark over the fate of its 14,000 employees worldwide. Bear Stearns does not have a big people presence in India although it was active as an institutional investor. On the investment banking side, it has advised Indian clients like Hiranandani Constructions.

    JPMorgan chief financial officer Michael Cavanagh declined to comment on the issue of worker retrenchment during an investor call he put to Wall Street.

    “We are expecting heads to roll,” a senior Indian investment banker with Bear Stearns in New York who did not want to be named, told DNA Money.

    “JPMorgan already has a strong investment banking core with big clients so they are likely to keep a few stars and sack the rest en masse,” he added.

    He said Bear Stearns employees had hoped a foreign bank would emerge as a buyer, since that might have meant fewer job cuts than a domestic takeover of this nature. Cavanagh made it clear during the conference call that JPMorgan was “most interested” in buying Bear Stearns’ prime brokerage business, which caters to hedge fund clients.

    JPMorgan doesn’t have such a business and James Dimon, chairman and chief executive of JPMorgan Chase has long wanted to add those operations to his bank’s expanding portfolio.

    There has been a buzz on Wall Street about Dimon wanting to buy a Wall Street firm. Indeed, he had made it clear that JPMorgan was setting its sights on a large regional-bank that could expand the bank’s national footprint in retail and commercial banking. The Bear Sterns buyout will not slake Dimon’s appetite for other acquisitions.

    Under his leadership, JPMorgan has largely escaped the subprime mortgage bloodbath but, it has been hit from some exposure to leveraged loans and rising delinquencies in its $95 billion home-equity business. Dimon’s reputation as a negotiator has been soaring, and even the average Joe is now in awe of his skills which have won JPMorgan Chase prime Manhattan real estate.

    Bear Stearns owns all 47 floors of plush 383 Madison Avenue estimated to be worth at least $1.2 billion.