JP Morgan clean-up of Bear to cost $9bn

NEW YORK - JP Morgan Chase is to take a charge of about $9 billion (€5.8 billion) - half as much again as its estimate - to clean up Bear Stearns's balance sheet and pay for redundancies and litigation arising from its cut-price takeover of the stricken investment bank.

Jamie Dimon, JP Morgan's chairman and chief executive, told a banking conference organised by UBS the higher costs were driven by losses suffered by Bear this year and the larger-than-expected bad assets on its books.

Mr Dimon said he remained optimistic on the long-term benefits of the $1.5 billion takeover of Bear but the success of the deal would have to be judged in future years.

The increase in the one-off charge underlines the challenges presented by a takeover agreed after only two days of talks under pressure from regulators worried that a Bear's collapse would spark a rout in global financial markets.

When the all-share deal was announced in March, JP Morgan said it would set aside $6 billion to shrink Bear's balance sheet and pay for potential litigation and the costs associated with layoffs.

JP Morgan has had to lift the offer price from $2 to $10 per Bear share, valuing the investment bank at $1.5 billion, to quell investor and employee anger.

In spite of the higher charge and other losses, Bear was expected to boost JP Morgan's second-quarter earnings by $1 billion and its total equity by $2 billion, Mr Dimon said. From 2009, Bear should contribute more than $1 billion a year to JP Morgan's profit.

JP Morgan has disclosed it faces potential civil charges from the US Securities and Exchange Commission under an inquiry into bidding for municipal bonds.

JP Morgan's purchase of Bear is not the only fire-sale deal to run into difficulty. Bank of America, which has agreed to buy Countrywide, the troubled mortgage lender, for $4 billion, has come under pressure from some shareholders to pay less or walk away.

Liam McGee, president of the bank's global consumer and small business unit, told the UBS conference he expected the bank's losses on its home equity portfolio to surpass its previous forecast of 2-2.5 per cent. - (Financial Times service)