JPMorgan To Unload Down Most Bear Funds

By Joseph A. Giannone

JPMorgan Chase & Co. expects to liquidate or spin off much of the asset management arm of Bear Stearns Cos. Inc. after it takes over Bear next month, according to people familiar with the situation.

Bear Stearns Asset Management, which during the past year generated more bad news than revenues, has about 400 employees and managed $39 billion in investments at the end of February. Earlier this month, JPMorgan Chase CEO Jamie Dimon told a UBS investor conference he expected the bank would close down “big parts of Bear’s asset management business.”

Ultimately, the sources said, roughly one-third of Bear Stearns Asset Management employees are expected to get job offers from JPMorgan Chase. The fate of Bear Stearns’s fund placement and funds-of-funds units, which operate under Bear Stearns Asset Management, will survive the move to JPMorgan Chase, be spun off or be shuttered. Some funds with strong track records will be spun off to their management teams, sources said. JPMorgan Chase and Bear Stearns declined to comment.

At the same time, Bear Stearns Merchant Banking, the mid-market buyout firm that’s separate from Bear Stearns Asset Management, is reportedly looking for new ownership. Goldman Sachs has emerged as the front-runner to buy Bear Stearns’s interests in the LBO shop’s funds, according to Private Equity Insider. In addition to housing Bear Stearns Merchant Banking, Bear Stearns was the buyout shop’s largest limited partner.

Meanwhile, JPMorgan Chase, which is eager to add on Bear Stearns’s brokerage business, will shut private client brokerage operations in London and Hong Kong over the next two months. About 10 brokers plus support staff in London and about eight employees in Hong Kong will lose jobs as a result, the sources said.

The moves mark a change in strategy since March 16, when JPMorgan cited Bear Stearns’s “broad asset management capabilities” as a selling point for its hastily arranged fire-sale takeover. Bear Stearns Asset Management was at the center of last year’s subprime mortgage meltdown, as the division housed the two collapsed mortgage-focused hedge funds that helped push the investment bank into a tailspin.

Dimon said JPMorgan Chase expected to book $300 million in the second-quarter on charges “mostly related to closing down big parts of Bear Stearns Asset Management” and from the expense of trying to retain Bear’s 470 brokers. People familiar with the situation said weak performing funds would be shut down and liquidated, while a few would make the move to JPMorgan’s $1.3 trillion asset management arm. Some of the more successful funds, such as Melissa Ko’s $1.2 billion Emerging Markets Macro Fund, will likely be spun off to their management teams.

Bear Stearns Asset Management has been buffeted by both internal and external events over the past year. First star money manager James O’Shaughnessy left to launch his own firm and took $8.8 billion of the unit’s assets with him.

JPMorgan Chase is eager to take on Bear Stearns’s private client brokerage business that generated $161 million in revenue and increased client assets during the first quarter. A number of brokers have been lured away by rivals. Roughly 400 out of 470 brokers are expected to join JPMorgan Chase, which does not have a retail brokerage business. Almost all of Bear’s brokers are in the United States.

(Joseph A. Giannone covers financial institution for the Reuters news service. Buyouts staff contributed to this report.)