Filed under: JPMorgan Chase (JPM), Bear Stearns Cos (BSC)

JPMorgan Chase & Co. (NYSE: JPM) CFO is giving a conference call now regarding its $2 a share deal to buy The Bear Stearns Companies (NYSE: BSC). JPMorgan thinks the Bear deal adds to its investment banking, prime brokerage, and commodities units and the price is so low that there is a margin for error.

Here are highlights:

• 12 to 18 months from now, the Bear Stearns prime brokerage, equity, and commodities businesses will add $1 billion to JPMorgan’s earnings
• The Fed is making a $30 billion non-recourse loan to JPMorgan against Bear’s mortgage-related assets. That means if the mortgage assets default, the Fed takes the hit, not JPMorgan
• JPMorgan is guaranteeing all the trading obligations of Bear Stearns
• JPMorgan plans to “deleverage” its balance sheet by $5 billion to $6 billion to maintain its 8% Tier One capital ratio
• JPMorgan will shed assets but its Fed financing will enable it to sell the assets “in an orderly fashion” rather than a “fire sale.”

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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