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JPMorgan Chase to buy Bear Stearns

  • Story Highlights
  • Acquisition values Bear Stearns shares at $2; shares closed Friday at $30
  • U.S. Fed providing financing for up to $30 billion in Bear Stearns assets
  • Bear Stearns was facing "run on the bank" on Friday
  • Deal, if approved by shareholders, will close in June
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NEW YORK (CNNMoney.com) -- JPMorgan Chase & Co. said Sunday that it is buying troubled Wall Street firm Bear Stearns, amid deepening fears that Bear's demise could have sent shockwaves across already shaky financial markets.

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The deal to buy Bear Stearns is worth an estimated $236 million.

The deal values Bear Stearns at $236 million, or just $2 a share. Shares had closed at $30 on Friday, down 47 percent that day.

"Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations," said a statement released Sunday by JPMorgan.

Shareholders must approve the deal, which is expected to close by the end of June.

JPMorgan is taking immediate responsibility for Bear's trading obligations and assuming "management oversight" of the firm's operations. The deal has already been approved by the Federal Reserve and other regulators, according to the statement.

The Fed is providing special emergency financing for up to $30 billion in Bear Stearns assets.

"JPMorgan stands behind Bear Stearns," said Jamie Dimon, chairman and chief executive of JPMorgan. "Bear Stearns clients and counterparties should feel secure that JPMorgan is guaranteeing ... risk," he continued.

The fast-track deal is expected to close by the end of June, the statement said.

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Bear Stearns was on the brink of financial collapse Friday when JPMorgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan.

Bear was dealing with a classic "run on the bank." The firm's short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt.

The one-two punch overwhelmed Bear's cash position.

With the global credit crisis worsening, the Fed -- along with officials from the Treasury Department and other government agencies -- took the dramatic action to prevent the investment bank from going under and igniting widespread panic through the financial markets. Video Watch a discussion on the impact on global markets »

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

He would not say what might have happened had the government failed to step in.

"I'm not going to speculate about what-ifs," he said. "I'm just going to say our clear priority right now -- our number one priority, everything we're doing in the economic arena -- is to minimize instability, minimize spillover into the real economy."

Bear Stearns has approximately 14,000 employees worldwide.

The deal marks an inglorious chapter for 85-year-old Bear Stearns, a storied Wall Street firm the unraveling of which has been fast and furious.

Rumors that Bear Stearns was on the verge of collapse started buzzing around Wall Street trading desks last Monday. Chief Executive Alan Schwartz -- who took over as CEO in early January from longtime chief Jimmy Cayne -- appeared on television on Wednesday afternoon to reassure the markets that the firm was stable.

But by Thursday night, Bear was in a severe crunch. Some firms that trade with it effectively stopped offering it credit because they feared that Bear was running short of short-term funding, or liquidity.

"The past week has been an incredibly difficult time for Bear Stearns," said Alan Schwartz, president and CEO of Bear Stearns. "This transaction represents the best outcome for all of our constituencies based upon the current circumstances."

White House spokesman Tony Fratto told CNN on Sunday that Paulson has briefed U.S. President George W. Bush on the Federal Reserve's role in helping to facilitate the purchase.

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"We appreciate the actions taken by the Federal Reserve this evening," said Fratto. "Secretary Paulson and Chairman Bernanke are actively engaged in addressing issues affecting our financial markets. Secretary Paulson has kept the President briefed on recent developments."

Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last year. E-mail to a friend E-mail to a friend

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