JP MORGAN CHASE AND BEAR STEARNS

Integrated Case Study - JP Morgan Chase and Bear Stearns

Table of Contents

CHAPTER 1: INTRODUCTION3

CHAPTER 2: CASE BRIEF6

CHAPTER 3: PROBLEM STATEMENT AND PLAN OF ANALYSIS9

CHAPTER 4: ANALYSIS & FINDINGS14

CHAPTER 5: PROPOSED SOLUTION TO PROBLEM24

CHAPTER 1: INTRODUCTION

Background of the Study

The study is related to JP Morgan Chase and Bear Stearns which particularly focuses on the mortgage financial crisis. The mortgage financial crisis is the economic crisis that has arisen with the contraction of liquidity in the banking system. The decline in the housing market of the United States, risky practices in lending and borrowing, high rates of individual and corporate debt cause much harm to the world economy. This mortgage financial crisis originated in the last years of the 20th century become apparent over the years 2007 and 2008, and has passed various levels of the mistakes of the financial system and comprehensive framework for global control which particularly affected JP Morgan Chase and Bear Stearns.

The Bear Stearns Companies, Inc is the parent company of Bear, Stearns & Co. Inc., one of the largest investment banking, trading securities and stockbroker. Its main business segments, based on 2006 contributions, were: capital markets (80%), asset management (10%) and services compensation (10%). A pioneer in the products of securitization, the investment bank, then the 5th of Wall Street, has been widely exposed to the subprime crisis and, despite a bailout of the Federal Reserve Bank of New York in March 2008, had to be sold to the commercial bank JPMorgan Chase at a price of $ 10 per share (the latter is evaluated before the crisis to more than $ 133). The bankruptcy of a precursor event was the collapse of the banking business of Wall Street in September 2008 and the financial crisis.

Statement of the Problem

The purpose of this study is to know how JP Morgan Chase and Bear Stearns got affected due to the mortgage financial crisis. Several factors combined to lead to mortgage financial crisis. First, the huge speculative bubble linked to real estate assets. In the United States, as in many other Western countries, after the bursting of the tech bubble of the early twenty-first century, between 2000 and 2001, there was a flight of investment capital from both institutional and family towards goods estate. The attacks of September 11, 2001 were an international climate of instability that forced major central banks to lower interest rates unusually low, in order to revive consumption and production through credit. The combination of both factors led to the emergence of a housing bubble based on an enormous liquidity.

In the JP Morgan Chase and Bear Stearns case, the purchase and sale of property for purposes speculation was accompanied by a high leverage, that is under mortgages, with the sale, were canceled to return to buy another home with a new mortgage, if not both operations financed by a mortgage bridge.

But the scenario changed after 2004 when the Federal Reserve of the United States began to raise interest rates ...