Is This JPM/Bear Deal Real?

What drove JPM (JPM) to offer $2/share for Bear’s (BSC) supposedly $80/share book value, and is this a believable offer? After all, the Federal Reserve is taking all the risk with its $30B non-recourse loan backed by Bear’s less than liquid mortgage assets. I believe the deal is not final and will not get shareholder approval. But, the Fed accomplished one of its goals – allowing Bear to continue in business. The Fed coerced JPM into assuming Bear’s risk, without JPM actually taking any risk. For this service JPM got to throw out a lowball offer.

The Fed could have just as easily backed Bear directly, and they did through this masquerade. JPM’s backstop is in effect until the deal closes or up to 12 months worth of shareholder re-votes. This, in essence allows Bear to stay alive for 12 months while trying to get a better deal. To that end, it is not inconsequential that no Bear Sterns people were on tonight’s conference call (3/16/08).

Disclosure: Author unfortunately is long BSC.