Everyone now knows that Jamie Dimon is the king of Wall Street. Girls at hedge funds have crushes on him. He’s been on the cover of New York magazine, towering over the city. They’re calling him “King James.”

For the most part, the ascendency of Dimon has been due to the fact that JP Morgan successfully avoided falling into the chasm of subprime mortgages into which so many of his fellow chief executives drove their banks and brokerages. Fortune’s has a long profile that describes Dimon’s management style, and precisely how he pulled JP Morgan back from the subprime brink.

Dimon favors boisterous meetings that delve into detailed analysis of his bank’s business. Fortune’s Shawn Tully reports that people describe these variously as “Italian family dinners” and “the Roman forum.” There not a lot of kow-towing to the big man, apparently. Ideas are debated vigorously and sometimes Dimon backs down. He wanted to get JP Morgan to go “open source” with the financial products it sold, selling clients on products developed by competitors. But one of his lieutenants eventually talked him out of it, convincing Dimon that JP Morgan’s homegrown products were performing as well as anyone else’s.

The subprime call—literally, a call to the head of structured products who was on vacation—came from Dimon after a meeting discussing the performance of the retail bank. In October 2006, the mortgage servicing business was reporting that late payments on subprime mortgages were rising at an alarming rate. Dimon and his team concluded that quality control had slipped at the originator level and decided to slash its holdings of subprime debt. It was this leap from the granular details to the bigger picture that enabled JP Morgan to make the right call on subprime while so many others were still rushing headlong into what was one of the hottest businesses on Wall Street.

We can’t help but wonder if there are, in the Dimon and subprime story, the seeds of an even greater story defending the efficacy of the mega-bank. After all, it was the fact from a retail business that tipped Dimon off to a strategic change at the investment level. A smaller brokerage or investment bank would not have had access to this data. Maybe its not the model of mega-banks that’s broken, after all.

Jamie Dimon’s swat team [Fortune]

JP Morgan Chase estimated that its holdings of Fannie Mae and Freddie Mac preferred stock lost about half of their value the third quarter now underway, according to a regulatory filing with the Securities and Exchange Commission. JP Morgan says it owns preferred shares of Fannie and Freddie with a $1.2 billion par value that has been written down by $600 million.

“The precise amount of losses that may be incurred on these securities for the third quarter is difficult to determine, given the significant volatility being experienced in the market values of these securities,” JP Morgan notes.

This move should also trigger writedowns at other financial firms, including regional banks and insurers, who hold the majority of Fannie and Freddie preferred shares.

JP Morgan 8-K [SEC]

Here in New York we’ve grown pretty accustomed to the idea that Wall Street is more of a metaphysical concept than a geographic one. Many of the so-called Wall Street firms long ago decamped for midtown locations (and, now, many have plans to head back to the area still quaintly known as the “Financial District”).

But over in the City of London they’re a bit more uptight about their reputation as an important financial district. So the news that JP Morgan is defected from the City to Canary Wharf is being treated as “a major blow.” The move may have been influenced by the fact that JP Morgan picked up a 300,000 square foot space in Canary Wharf when it acquired Bear Stearns.

JPMorgan Cazenove deals City of London major blow with Canary Wharf defection [Telegraph]

Late Thursday afternoon, long after the markets had closed and many on Wall Street had long since evacuated for the long weekend, the Federal Reserve revealed its estimates for the value the Bear Stearns assets it accepted as collateral for the $28.9 billion loan JP Morgan Chase used to buy the firm and prevent its bankruptcy. That collateral was worth just $28.8 billion, according to the Fed.

What this means is that the decline in the collateral value has already eaten through a good chunk of the $1.15 billion of exposure JP Morgan agreed to take as part of the deal. The collateral has already declined by 3.7% in a couple of months. Much of the collateral consists of mortgage linked securities, so unless that market turns around sharply, it seems likely that taxpayers will be forced to foot the bill for Bear Stearns collapse.

Indeed, The New York Post reported this morning that a hedge fund investor in JP Morgan is predicting further declines in the collateral values. Taxpayers are on the hook for any decline past the $1.5 billion hit JP Morgan agreed to take. The Fed is being criticized for not revealing more about the assets that make up the collateral. JP Morgan says it is bound by a confidentiality agreement not to comment.

Hedge Fund Report: Bear Buyout Could Cost Taxpayers [New York Post]

Bear Stearns private-equity unit, Bear Stearns Merchant Banking, is expected to announce that it will be spun off into an independent company with JPMorgan Chase as its largest investor.

JPMorgan will assume around $1 billion of BSMB’s “investments and commitments.” BSMB manages around $5 billion.

Sadly, it looks like they are planning to drop the name Bear Stearns, even though they aren’t sure what to call themselves.

“Almost every rock, tree, and Greek god has been taken,” said BSMB partner Douglas Korn.

Bear Buyout Arm Ready to Fly Solo [Wall Street Journal]

What was it that prompted JP Morgan cheif Jamie Dimon to call Citigroup’s Vikram Pandit a jerk? Apparently Pandit was asking how the deal to buy Bear Stearns would affect the risk to Bear’s trading partners on certain long-term contracts. This was a crucial issue because many of Bear’s counter-parties had been unwinding contracts for fear the investment bank might collapse. As part of the deal, JP Morgan had put in place a durable guarantee that it hoped send a very strong signal that would stop the run on Bear.

But for some reason the Pandit’s question irked Mr. Dimon. “Stop being such a jerk,” he told Pandit. A little over a week later, JP Morgan would attempt to get out of the guarantee and unnamed sources started saying that JP Morgan never meant to enter into it to begin with.

Probably our favorite part of yesterday’s final installment of the Wall Street Journal’s three-part series on the destruction of Bear Stearns is an exchange that takes place between JP Morgan Chase CEO Jamie Dimon and Citigroup CEO Vikram Pandit.

As you probably know, Dimon was the heir apparent to ascend to the top of Citigroup after serving for years as the right-hand man of banking empire building Sandy Weil. At the last moment, however, he was forced out of the bank and the top spot was handed to Citigroup’s lawyer. Fast forward a few years and Dimon gets to run Citigroup’s rival, JP Morgan, and that uppity lawyer is forced to resign in disgrace. Pandit is summoned up to take over Citi.

And, after the jump, here’s Dimon hazing the new kid on the Wall Street CEO block.

Yesterday we spent quite a bit of time explaining why the loophole legend probably isn’t true. Now it seems that traders connected with the deal are lending support to this argument, saying that the notion that JP Morgan Chase’s strong guarantee of Bear Stearns liabilities was an oversight was concocted ex post facto.

“It was well known by bankers at JPM during that first weekend of negotiating that a guarantee was being baked into the deal,” an anonymous trader tells a Queens based reporter who maintains the GreenFieldsOfTheMind blog. “No idea what the conversations were at the highest levels but from the way it was described to me it did not sound like an oversight/loophole. Only after the fact was it talked about that way.”

The Loophole Legend [GFOTM]

The last chapter of Kate Kelly’s Wall Street Journal epic on the decline and fall of Bear Stearns tells us that the “hurried deal” to keep Bear Stearns out of bankruptcy included a “loophole” that gave Bear Stearns investors leverage to seek a higher price. By now this story of the loophole is well-known, thanks in part to a New York Times front page story that first reported it. In time this story is likely to harden into conventional wisdom, especially now that it’s been endorsed by both the Times and the Journal.

Unfortunately, the story probably isn’t true.

That sure was quick. We’re told the Bear Stearns shareholder meeting is over, and the acquisition by JP Morgan has been approved. The meeting began at 10 am this morning.

Bear Stearns chairman Jimmy Cayne, who has already sold all his shares and so didn’t even get to vote at the meeting, presided over the meeting. We’re told he said something about Bear being “acquired by a first class firm.”

The deal is expected to close before midnight Friday.

Update: From the WSJ’s reporting.

Alan Schwartz, Bear’s CEO, [Turns out it was Cayne who] made a brief statement: “It’s a sad day but we’ll get through it, and we may be better off for it … The company that is taking us over, or is merging with us, is a first-class company. … That which doesn’t kill you makes you stronger. By now we all must be Hercules. … We ran into a hurricane…. There’s no anger; there’s simply remorse.”

Mr. SchwartzMr. Cayne said he “personally” apologized, saying he was “sorry that it happened. Words alone can’t describe the pain that I feel.”

We’re told that layoffs began yesterday in the structured leverage finance group at JP Morgan. Yesterday heads rolled among the senior staff. Today junior people are feeling the axe-man’s blade, according to a source familiar with the matter.

The irony of the failure of some of Wall Street’s biggest institutions to manage risk properly is that the consolidation of banks and brokerages—which many cite as exacerbating the crisis—is likely to accelerate. Indeed, it already has, with JP Morgan Chase swallowing Bear Stearns. Increased regulations and government oversight, which increases the overhead costs of compliance, are likely to increase the pressure to consolidate.

But shouldn’t it be the other way around? Shouldn’t the government begin to wonder what can be done so that the failure of a single bank or brokerage doesn’t necessitate extraordinary government intervention? In a new essay in the Washington Independent Jonathan Macey, a professor at Yale Law School, argues that the government should use antitrust laws to break-up “too big to fail” banks.

After the jump, Macey’s plan and why it won’t work.

Let’s start with some good news this morning. The Financial Times is reporting that JPMorgan Chase has launched “an unprecedented campaign” to find jobs for more than 5,000 people who are being laid off after the take rover Bear Stearns.

Jamie Dimon, JPMorgan’s chairman and chief executive, has personally written to more than 30 clients, rivals and vendors to ask them to consider former Bear staff. People close to the situation said Mr Dimon was planning to send about 100 such letters.

And it’s more than just a few letters. It’s a major corporate initiative being headed up by Frank Bisignano, JP Morgan’s chief administration officer. The bank has already assembled a database of 3,000 vacant positions across the industry. Basically, JP Morgan has set up a temporary financial job placement firm. (Of course, if you are worried you might need to find a new job, you don’t have to wait for Jamie to find it for you. You can always take a look in our Career Center.)

JPMorgan seeks jobs for sacked Bear staff [Financial Times]

The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings

“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”

Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.

Hewlett-Packard: The Advisers [Deal Journal]

On Tuesday, March 11, Federal Reserve Chairman Ben S. Bernanke lunched with what Bloomberg is describing as a “Who’s Who of Wall Street leaders.” Attendees JPMorgan Chase ‘s Jamie Dimon, Goldman Sachs’s top dog Lloyd Blankfein, Lehman Brothers boss Richard Fuld, Morgan Stanley President James Gorman, Citigroup’s consigliore Robert Rubin, Blackstone Group’s little big man Stephen Schwarzman and Merrill Lynch’s John Thain.

Guess who wasn’t at the lunch? If you answered “anyone from Bear Stearns” you’d be absolutely right. Now some are speculating that Bear Stearns may have been purposefully excluded because its fate was one of the topics of discussion.

“It doesn’t seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn’t about Bear Stearns, who had rumors swirling about them since Monday,” Eric Salzman at the Monkey Business blog says.

What was discussed at the luncheon has not been revealed. Bloomberg News obtained Bernanke’s schedule and the list of attendees in response to a request under the Freedom of Information Act. But the timing seems is jarring. Rumors of liquidity troubles at Bear had prompted the bank to issue a denial the day before for the lunch. On the preceding Friday, one bank (which has not been identified) refused to make a short term loan of $2 billion to Bear. The meeting came hours after Bernanke announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities. Hours after the meeting every bank on Wall Street reportedly began refusing to issue credit protection on the debt of Bear. Two days later Bear Stearns chief executive Alan Schwarz would be forced to call Dimon to seek $30 billion in emergency funding.

Update: Was Bear left out because its top two men were out of town? If we recall correctly, Schwarz was down at the Bear Stearns Media Conference in Palm Beach around this time, and chairman Jimmy Cayne was flying out for a bridge tournament in the midwest.

Bernanke Lunched With Dimon, Rubin Before Bear Rescue [Bloomberg]

JPMorgan Chase has extended jobs offers to about 6,000 Bear Stearns employees, Reuters is reporting this morning. Bear is thought to have had around 14,000 employees just prior to the announcement of the acquisition.

Reuters source is “a person familiar with the situation” which we’re taking to mean someone at JP Morgan who spoke on the condition that the quote not be attributed to them.

There may still be additional hires, however, as this morning JP Morgan head honcho Jamie Dimon said only about three-fourths of the personnel decisions had been made. But it’s not exactly like they’re saving the best for last, so the folks who still haven’t heard probably shouldn’t get their hopes up.

“The remaining roughly 3,500 employees will learn their fates in the next two weeks. These staffers, mostly in technology and operations, and will likely see a lower percentage of job offers,” Reuters reports.

Not all of those offered jobs by JP Morgan are accepting them. According to our own sources familiar with the situation, many Bear employees have been offered jobs at JP Morgan at substantially lower levels—and lower pay—than they enjoyed at Bear. Some in highly regarded units of Bear have been swept up by other competitors.

JPMorgan offered jobs to 6,000 Bear staff: source [Reuters]

JP Morgan has taken a hatchet to Bear Stearns’ foreign exchange business, with 62 of 73 positions set to be “put on notice,” according to a Forex Factory story citing “a senior Bear Stearns official.”

Both the New York and London offices of Bear Stearns have been slashed. In New York, 28 out of 34 people working in foreign exchange are expected to receive this week what Forex Factory describes as “consultation letters.” In London, 33 of the 39 team members received notification last week that they had entered a consultation period. It’s unclear how many of these “consultations” will result in job cuts or offers for positions. Apparently some have been offered positions at JP Morgan but turned them down because they were a lower levels—and presumably paid less—than their positions at Bear Stearns.

“Bear Stearns’ New York trading operations have almost ground to a halt, with the FX team handling only 1% of its pre-takeover commerce,” Forex Factory reports.

Bear Stearns gets the axe [Forex Factory]

The bankers behind the deal for J.P. Morgan Chase to acquire Bear Stearns are quietly admitting that the deal was not reworked because lawyers mucked up the documentation, a claim that the New York Times prominently featured.

On March 24th, the second Monday following the initial announcement of the deal, a story in the New York Times reported that people involved with the takeover talks were claiming that the rushed preparation of the deal documentation had led JP Morgan to sign a guaranty agreement that went further than it ever intended. In the guaranty agreement signed in connection with the merger, J.P. Morgan agreed to “unconditionally” guarantee “the due and punctual payment” of all of Bear’s “covered liabilities” for a period of time starting March 16, 2008, and seeming to last in perpetuity.

A little more than a week later, JP Morgan was floating the idea that the guaranty was never meant to last beyond the rejection of the deal by Bear Stearns shareholders. But this was nothing more than a cover-up meant to conceal the more frightening reality that Bear Stearns was once again teetering on the edge of bankruptcy, with brokerage clients fleeing for the exits, as DealBreaker’s analysis showed later that day.

The guarantee of Bear Stearns’ liabilities from JP Morgan Chase wasn’t working. Although the banking giant had put its “full faith and credit” behind Bear’s liabilities, some of Bear’s largest customers were refusing to do business with it. Counter-parties were fleeing, and Bear’s collateral was being refused up and down Wall Street. The guarantee, which was intended to keep Bear in business, had failed to provide customers with enough assurance to prevent a second round of the run-on-the-bank that nearly bankrupted Bear, people recently familiar with Bear’s operations are saying behind the scenes.

Bear Stearns’ latest proxy statement, filed last week with the Securities and Exchange Commission, confirms our analysis. (Fortune magazine’s Roddy Boyd has a good description of the dramatic renegotiations in the face of bankruptcy pressure here.) The proxy statement explains:

At the time of execution of the merger agreement, Bear Stearns and JPMorgan Chase hoped that execution of the merger agreement and the guaranty would stabilize Bear Stearns’ liquidity position by providing assurances to Bear Stearns’ customers, counterparties and lenders that JPMorgan Chase was standing behind Bear Stearns’ obligations. However, following the announcement of the transaction on March 16, 2008, Bear Stearns’ customers continued to withdraw funds, counterparties remained unwilling to make secured funding available to Bear Stearns on customary terms, and funding (other than from JPMorgan Chase and the New York Fed) was not available. JPMorgan Chase and Bear Stearns believed that the continued loss of customers and the continued unwillingness of counterparties to make secured funding available on customary terms was a result of, among other things, concerns that the merger would not be completed and the JPMorgan Chase guaranty would terminate, and perceived deficiencies and uncertainty on the part of Bear Stearns’ customers, counterparties and lenders regarding the scope and terms of the guaranty.

The proxy statement makes no mention of missteps in documentation. That contention has simply been dropped in favor of vaguer talk about negotiations to “clarify” the JP Morgan guarantee. It seems that the bankers who anonymously fed the “misstep” story to journalists weren’t willing to risk the legal consequences of repeating it to the SEC. This amounts to a tacit admission that the story was bunk from the get go.

When Bear Stearns looked like it would go for $2 a share, there was a lot of sympathy for investors who stood to lose tremendous amounts. Employees—who own about a third of Bear—faced not only losing their jobs but their savings as well. So when they gnashed their teeth and hollered that their firm was being stolen by a conspiracy led by the Fed and carried out by JP Morgan Chase, it was just plain polite not to point out that their firm was on the verge of bankruptcy, that its failures had arguably put the larger financial system at risk and that what little they were getting was the result of a government-led bailout.

But now that the price of the deal has risen to ten dollars and shares are trading even higher than that, the backlash has begun. Writing for Smart Money, James Stewart writes that the protests against the rescue of Bear Stearns from insiders are “galling.” What’s more, it shows the Wall Street is all too willing to seek a government safety net when it stumbles on its free-market high-wire act, he argues. The profits from risk are private, but the losses are all too public.

Having artfully solved a thorny problem a week ago, the government has now embraced a deal whose terms reek of the bailout it was at such pains to avoid. If the government is willing to bestow such a windfall on a James Cayne, where will it it stop? Why should other financial firms reduce risk and shore up their capital? What discipline will the market ever be able to impose? Future disasters will only be worse, which will dwarf the immediate cost of the current rescue.

Yves Smith at Naked Capitalism is even more blunt, and he criticizes the media for being too sympathetic to Bear’s employees and investors. “Bear was going to fail as of Monday,” he writes. “Bye bye equity and many if not most jobs. How hard is this to understand? I thought anyone who was remotely financially literate understood what bankruptcy means. The employees should be grateful to get anything. But no, the media slavishly accepts their sense of entitlement.”

No Tears for Mr. Cayne [Smart Money]
Bear: Did the Fed and Treasury Push Too Hard? [NakedCapitalism]

Did JP Morgan Chase inadvertently include an overbroad guaranty in its deal to acquire Bear Stearns? That’s what unnamed sources were telling journalists over the weekend. The idea was that the rushed preparation of the documentation had led JP Morgan to sign a guaranty agreement that went further than it ever intended. And when the new documentation for the raised bid emerged, that story seemed to gain credibility because the new guaranty agreement was dramatically cut back.

But was it a misstep in the original documentation or is this story spin meant to provide cover for a rethinking of the guarantee? Yesterday we spent a good part of the day explaining that the available evidence indicated that the original, broader guarantee reflected the deal that was described on the conference call a week ago last Sunday. We were lonely voices on this point, as most of the financial media seemed to have contracted acute amnesia about that conference call. Fortunately, as the day passed, the media seem to have recovered.

In this morning’s Wall Street Journal, Ashby Jones pretty much shoots down the “mistake” spin. After noting that some lawyers had “surmised” the broader guarantee was an “oversight” by JP Morgan and its lawyers at Wachtell Lipton, Jones says, “But other lawyers said the wording was in line with the intentions of at least one decision maker at the bank at the time the deal was struck, public comments suggest.”

Steve Black, the co-head of J.P. Morgan’s investment-banking division, appeared to address the issue in a March 16 conference call with analysts.

“The guarantee applies to all transactions on the books today and any transactions that are entered into while that guarantee is in place,” he said. J.P. Morgan didn’t respond to a request for comment.

The measure “seems rational,” given the circumstances at the time, when J.P. Morgan was trying to signal to the market that it would stand by Bear’s obligations, says Lawrence Cunningham, a law professor at George Washington University. “Bear was fighting for its life and a handful of forces were at play and it makes sense that J.P. Morgan would want to add credibility to the deal by giving a big guarantee.” Observers add that J.P. Morgan might not have anticipated the shareholder resistance that surfaced to the original deal.

Over at the Conglomerate, law professor Gordon Smith agrees. He wonders how apoplectic JP Morgan head Jamie Dimon really was over the broad guarantee.

“I don’t doubt that he presented the case in this way, but forgive me if this sounds like a bit of buyer’s remorse,” he writes. :In other words, Dimon’s indignation at his lawyers looks like a pretext for another problem with the original deal, namely, that Morgan no longer wanted the deal to stay open for a whole year if Bear’s shareholders rejected it.”

Did Deal Overexpose J.P. Morgan? [Wall Street Journal]
The Morgan Guarantee [Conglomerate]