J.P. Morgan Chase acquired the investment bank Bear Stearns with a price tag that was a real stunner; it has agreed to pay $2 per share for acquiring Bear Stearns. This purchase price will be paid fully in stock & includes company's forty five storey NY Office Tower. Before the announcement, the price that was talked about was $30 per share. But with $2 per share, the total value of the acquisition, roughly about $236 million is only a fraction of Bear Stearns market value - $3.5 billion.According to The New York Times, Federal Reserve is providing $30 billion credit line to J.P. Morgan Chase which will be secured by Bear Stearns portfolio less-liquid assets like mortgage securities. In a situation these assets lose more value, Federal Reserve will be affected, not J.P. Morgan.
Bear Stearns was known as one of the biggest gamblers of mortgage securities business. It had provided large lines of credit to many subprime lenders & had underwritten Alt-A mortgages. By last month, foreclosure rate on such mortgage was at 15%, about twice to what was the industry average.