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JP Morgan raises Bear Stearns bid JP Morgan raises Bear Stearns bid
(20 minutes later)
JP Morgan Chase has raised its offer for Bear Stearns to $10 a share, a hefty increase from the original offer of $2 a share.JP Morgan Chase has raised its offer for Bear Stearns to $10 a share, a hefty increase from the original offer of $2 a share.
In addition it is buying 95 million newly issued Bear Stearns shares - equivalent to 39.5% of the company.In addition it is buying 95 million newly issued Bear Stearns shares - equivalent to 39.5% of the company.
The original offer angered many Bear shareholders who thought it too cheap.The original offer angered many Bear shareholders who thought it too cheap.
The new deal values Bear Stearns at $1.19bn, still a fraction of its value before confidence in the bank collapsed and clients started to withdraw funds.The new deal values Bear Stearns at $1.19bn, still a fraction of its value before confidence in the bank collapsed and clients started to withdraw funds.
'Increased chance''Increased chance'
Bear Stearns shares doubled after the announcement, JP Morgan Chase was up more than 2%.
But analysts say there will still be doubts, despite the sweetened offer.But analysts say there will still be doubts, despite the sweetened offer.
"Clearly this increases the chance the deal goes through, but there are still going to be employees and shareholders unhappy with $10 a share," said James Ellman, Portfolio Manager at Seacliff Capital in San Francisco."Clearly this increases the chance the deal goes through, but there are still going to be employees and shareholders unhappy with $10 a share," said James Ellman, Portfolio Manager at Seacliff Capital in San Francisco.
JP Morgan Chase also agreed to change the guarantees it is receiving from the US Federal Reserve.JP Morgan Chase also agreed to change the guarantees it is receiving from the US Federal Reserve.
The investment bank will now take on the first $1bn of any Bear Stearns' losses and the Fed will fund remaining $29bn.The investment bank will now take on the first $1bn of any Bear Stearns' losses and the Fed will fund remaining $29bn.
Credit crunchCredit crunch
The raised offer might calm shareholders who feel that Bear Stearns was sold at a bargain price.The raised offer might calm shareholders who feel that Bear Stearns was sold at a bargain price.
Bear Stearns, a victim of the credit crunch, was sold as confidence in the bank fell and clients withdraw funds.Bear Stearns, a victim of the credit crunch, was sold as confidence in the bank fell and clients withdraw funds.
The bank got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.The bank got into trouble when other banks refused to lend it money over fears that it had too many bad debts due to the sub-prime mortgage crisis.
Clients were worried about Bear Stearns exposure to investments in assets backed by US mortgages.Clients were worried about Bear Stearns exposure to investments in assets backed by US mortgages.
It had been reported that the Fed was reluctant to agree to a raised offer as it did not want to appear to be bailing out Bear Stearns shareholders.It had been reported that the Fed was reluctant to agree to a raised offer as it did not want to appear to be bailing out Bear Stearns shareholders.
Many of those shareholders have seen their investment decimated.Many of those shareholders have seen their investment decimated.