One for the “what next” pile: litigation.
We’ve been considering starting a new legal category here at FT Alphaville and this is just another nudge. While JPMorgan’s deal to scoop up Bear at $2 a share will eventually add around $1bn to annual earnings, the bank is setting aside $6bn in pretax costs to cover, at the top of the list, litigation. The other items mentioned in the JPM slides as feeding into that $6bn figure are, for the record, cost of deleveraging, conforming accounting, and consolidation including severance, technology and facilities.
The $236m deal value is clearly hugely discounted, as an emergency sale over the course of a weekend. But even versus Bear’s circa $10bn market value at the turn of the year, the amount being set aside is sizable. It is also presumably a more-or-less educated guess.
The weakened Wall St banks are probably sufficiently busy with their own problems to raise protest that JPM is getting a Fed leg-up in buying Bear for next to nothing.
Shareholders may balk at the $2 price tag – but, as noted by Dealbook, the structure of the deal possibly gives Bear another year to wait around for a higher offer should its investors revolt. In the wings this weekend were, if you believe the reports, Citadel, KKR and JC Flowers. That could get messy though, muddying the most appealing aspects of this solution: speed and clarity.