The deal values Bear at just $2 a share, compared to a $169 share price in January last year and $30 in mid-March, when the bank was forced to arrange an unspecified amount of emergency funding as its liquidity position significantly deteriorated. JPMorgan and the Federal Reserve of New York provided funds for an initial period of 28 days.
The extraordinary low share valuation would wipe out the value of investments of Bear’s shareholders, including some of its senior management. Investors have been betting that opposition to the deal by some shareholders, such as UK-born billionaire Joseph Lewis, whose stake in Bear is believed to be about 9%, and some of Bear’s employees, who own one-third of the bank, might force the takeover price higher. Mr Lewis’s stake is believed to be more than $1bn below its value last summer.
Bank chairman and former chief executive Jimmy Cayne has also taken large paper losses on his holdings. Analysts believe that shareholders’ opposition to the deal price might also attract rival bids.
Bear’s share fall triggered other financial institutions’ shares to fall sharply. JPMorgan said that in addition to the emergency loans, the Fed had agreed to provide funds of up to $30bn to support Bear’s low liquid assets.
The arrangement decreases JPMorgan’s risks and highlights the authorities’ concerns at the prospects of seeing one of the most prominent US investment banks go bust.
Bear Energy, a subsidiary of the Wall Street bank, attempted to raise money for its parent by liquidating its physical stores of natural gas, which raised concerns about the impact that this sudden selling would have on the wider market.
Dresdner and Allianz split
Dresdner Bank, owned by German insurer Allianz, has announced that it will be split into separate businesses, increasing the prospects for the sale of the investment banking division, Dresdner Kleinwort. Allianz has come under repeated pressure to exit investment banking because of the earnings volatility that the business has caused since the group bought Dresdner in 2001.
Northern Rock, the UK bank worst hit by the credit crunch, has been forced to considerably reduce its mortgage book and workforce under a restructuring plan designed to ensure that it satisfies tough EU rules on state aid.
HSBC, Europe’s largest bank and emerging market specialist, has announced plans to expand its presence in sub-Saharan Africa as the region becomes increasingly significant for its Asian and Indian clients. The London-based bank has a small operation in South Africa, which it will also seek to increase because of its growing importance in areas such as commodities.
A report by French judiciary court La Cour des Comptes has established that the financial equilibrium of French postal bank La Banque Postale is being endangered by the size and inefficiencies of its parent, La Poste. According to the report, the bank has too many branches, and employees from France’s national post office are not effective enough at ensuring the bank is competitive.
The UK’s Barclays has agreed to buy Expombank, a small Russian retail and commercial banking group operating in Moscow and St Petersburg, for £373m ($745m). The bank has 32 branches and one of the biggest ATM networks in the Russian capital.
Kookmin Bank, South Korea’s largest lender, has announced that it will buy a 30% stake in Kazakhstan’s Bank CenterCredit for about $634m. The bank also said it will seek to increase its stake in the Kazakhstan bank up to 50.1% in the future.
A group of investors led by Japan’s Nomura Holdings has been chosen to acquire Ashikaga Bank, an ailing regional bank that was nationalised in 2003. The alliance includes Next Capital Partners and has paid Y120bn ($1.2bn) for the deal. The Nomura group will also inject a further Y160bn into the bank to bolster its capital.
Bank of China expansion
Bank of China has announced its intentions to expand in the Asia-Pacific and Middle East without indicating any specific interest. The bank ruled out any acquisition of western financial institutions hit by the credit crunch. The lender is the Chinese bank that has been hit the hardest by the US subprime mortgage crisis.
Bank of China has also announced plans to sell its first asset-backed securitisation deal this year. The product will use property loans as its underlying assets and the bank has highlighted that these will be of the highest quality and will have nothing to do with the US subprime market.
Chinese insurer Ping An has started talks to acquire a 50%- stake in Fortis’s asset management business in a move that could inject as much as €2.15bn into the Belgo-Dutch financial services group.
