At $2 per share, or roughly $270-million, the price JPMorgan Chase & Co. (JPM) is paying for Bear Stearns Co. (BSC) may sound cheap, but if a resolution had not come during the weekend, the firm’s situation looked like it would only get worse when markets opened.
Not only is JPM getting $30-billion in financial backing from the U.S. Federal Reserve for Bear’s most illiquid assets, which means its liquidity position is not diluted, but the deal’s economics look good from a strategic perspective, according to Citigroup analyst Keith Horowitz. JPMorgan gets several business lines from Bear that complement its investment bank quite well, he told clients in a note. This is despite $6-billion in estimated transaction costs.
In a note to clients Mr. Horowitz said:
One of the keys to the deals is whether JPM management can adequately assess the risk on Bears’ balance sheet, and execute on the integration. In our opinion, this is one of JPM’s key strengths and we have full confidence it can execute this deal.He rates the shares a "hold" with a $41 price target.
So while there has been no shortage of talk about assets looking cheap recently, it appears that JPM was in a position to capitalize.
