JP Morgan Chase 2010 Annual Report Download - page 167

JPMorgan Chase & Co./2010 Annual Report 167
Condensed statement of net assets acquired
The following condensed statement of net assets acquired reflects the final value assigned to the Washington Mutual net assets as of Septem-
ber 25, 2008.
(in millions)
September 25, 2008
Assets
Cash and due from banks
$
3,680
Deposits with banks
3,517
Federal funds sold and securities purchased under resale agreements
1,7
00
Trading assets
5,691
Securities
17,224
Loans (net of allowance for loan losses)
206,456
Accrued interest and accounts receivable
3,253
Mortgage servicing rights
5,874
All other assets
16,596
Total assets
$
263,991
Liabilities
Depo
sits
$
159,872
Federal funds purchased and securities loaned or sold under repurchase agreements
4,549
Other borrowed funds
81,636
Trading liabilities
585
Accounts payable, accrued expense and other liabilities
6,708
Long
-
term debt
6,718
T
otal liabilities
260,068
Washington Mutual net assets acquired
$
3,923
Merger with The Bear Stearns Companies Inc.
Effective May 30, 2008, BSC Merger Corporation, a wholly owned
subsidiary of JPMorgan Chase, merged with The Bear Stearns
Companies Inc. (“Bear Stearns”) pursuant to the Agreement and
Plan of Merger, dated as of March 16, 2008, as amended March
24, 2008, and Bear Stearns became a wholly owned subsidiary of
JPMorgan Chase. The merger provided the Firm with a leading
global prime brokerage platform; strengthened the Firm’s equities
and asset management businesses; enhanced capabilities in mort-
gage origination, securitization and servicing; and expanded the
platform of the Firm’s energy business. The merger was accounted
for under the purchase method of accounting, which requires that
the assets and liabilities of Bear Stearns be fair valued. The final
total purchase price to complete the merger was $1.5 billion.
The merger with Bear Stearns was accomplished through a series of
transactions that were reflected as step acquisitions. On April 8,
2008, pursuant to a share exchange agreement, JPMorgan Chase
acquired 95 million newly issued shares of Bear Stearns common
stock (or 39.5% of Bear Stearns common stock after giving effect
to the issuance) for 20.7 million shares of JPMorgan Chase com-
mon stock. Further, between March 24, 2008, and May 12, 2008,
JPMorgan Chase acquired approximately 24 million shares of Bear
Stearns common stock in the open market at an average purchase
price of $12.37 per share. The share exchange and cash purchase
transactions resulted in JPMorgan Chase owning approximately
49.4% of Bear Stearns common stock immediately prior to con-
summation of the merger. Finally, on May 30, 2008, JPMorgan
Chase completed the merger. As a result of the merger, each
outstanding share of Bear Stearns common stock (other than shares
then held by JPMorgan Chase) was converted into the right to
receive 0.21753 shares of common stock of JPMorgan Chase. Also,
on May 30, 2008, the shares of common stock that JPMorgan
Chase and Bear Stearns acquired from each other in the share
exchange transaction were cancelled. From April 8, 2008, through
May 30, 2008, JPMorgan Chase accounted for the investment in
Bear Stearns under the equity method of accounting. During this
period, JPMorgan Chase recorded reductions to its investment in
Bear Stearns representing its share of Bear Stearns net losses,
which was recorded in other income and accumulated other com-
prehensive income. The difference between the net assets acquired
and the fair value of the net assets acquired (including goodwill),
presented in the tables below, represent JPMorgan Chase’s net
losses recorded under the equity method of accounting.
In conjunction with the Bear Stearns merger, in June 2008, the
Federal Reserve Bank of New York (the “FRBNY”) took control,
through a limited liability company (“LLC”) formed for this purpose,
of a portfolio of $30 billion in assets acquired from Bear Stearns,
based on the value of the portfolio as of March 14, 2008. The
assets of the LLC were funded by a $28.85 billion term loan from
the FRBNY, and a $1.15 billion subordinated loan from JPMorgan
Chase. The JPMorgan Chase loan is subordinated to the FRBNY
loan and will bear the first $1.15 billion of any losses of the portfo-
lio. Any remaining assets in the portfolio after repayment of the
FRBNY loan, the JPMorgan Chase note and the expense of the LLC
will be for the account of the FRBNY.