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Note: The transcript and slide presentation of the March 12, 2008 analyst presentation reported below were filed with the SEC at 11:55AM on May 14, 2008, after the article below was published:

The reported $9 billion charges had in fact been explained previously in identical sections of the following SEC filings, captioned "Unaudited Pro Forma Combined Financial Information" (pages 68-78 of both reports), based on purchase accounting provisions for the difference between the estimated $10.3 billion "fair value of Bear Stearns’ pro forma net assets at November 30, 2007" and an estimated $1.4 billion purchase price:


Financial Times, May 14, 2008 article


FT Home

JPMorgan faces higher charge of $9bn to cover Bear Stearns' clean-up
By Francesco Guerrera and Ben White in New York
Published: May 14 2008 03:00 | Last updated: May 14 2008 03:00

JPMorgan Chase is to take a charge of about $9bn - half as much again as its estimate - to clean up Bear Stearns' balance sheet and pay for redundancies and litigation arising from its cut-price takeover of the stricken investment bank.

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

Mr Dimon said he remained optimistic on the long-term benefits of the $1.5bn 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 take-over that was agreed after only two days of negotiations under pressure from the regulators worried that Bear's collapse would spark a rout in the global financial markets.

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

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

JPMorgan executives say the final figure will depend on what else they find on Bear's balance sheet and how easy it is to wind down assets and agree redundancies. JPMorgan has offered jobs to about 6,000 of Bear's 14,000 employees and is helping others to find positions elsewhere.

In spite of the higher charge and other losses, Bear was expected to boost JPMorgan's second quarter earnings by $1bn and its total equity by $2bn - below previous estimates of a $5bn equity contribution - Mr Dimon said.

From 2009, Bear is expected to contribute more than $1bn a year to JPMorgan's profit.

Separately, JPMorgan has disclosed it faces potential civil charges from the Securities and Exchange Commission as part of a probe into the bidding for municipal bonds.

JPMorgan'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 $4bn has come under pressure from some shareholders to pay far less or walk away.

Liam McGee, president of BofA'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 between 2 per cent and 2.5 per cent.


Copyright The Financial Times Limited 2008





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