The deal values the firm at roughly $240m, a fraction of its value even a week ago. Its share price closed on Friday at $30 and at its height last year shares in the firm were going for $170.
But just like Northern Rock in the UK, rumours of a cash shortage led to a run on the bank with investors reported to have withdrawn a whopping $17bn in just two days.
The boards of directors of both firms have unanimously approved the transaction, as have all relevant US authorities.
The US Federal Reserve has also agreed to fund up to $30bn of Bear Stearns’ less liquid assets.
Alan Schwartz, president and chief executive officer of Bear Stearns, says: “The past week has been an incredibly difficult time for Bear Stearns. This transaction represents the best outcome for all of our constituencies based upon the current circumstances.
“I am incredibly proud of our employees and believe they will continue to add tremendous value to the new enterprise.”
Jamie Dimon, chairman and chief executive officer of JP Morgan Chase, says: “JPMorgan Chase stands behind Bear Stearns.
“Bear Stearns’ clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns’ counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner.”
“This transaction will provide good long-term value for JPMorgan Chase shareholders. This acquisition meets our key criteria: we are taking reasonable risk, we have built in an appropriate margin for error, it strengthens our business, and we have a clear ability to execute.”