WASHINGTON (Dow Jones)--The Federal Reserve has agreed to temporarily relax certain restrictions on transactions between banks and their affiliates and ease regulatory capital requirements to facilitate the proposed takeover of Bear Stearns Cos. (BSC) by JPMorgan Chase & Co. (JPM). Ê The Fed approved a request by JPMorgan to exempt it, for a period of 18 months, from rules that limit the amount of "covered transactions" between a bank and any single affiliate to 10% of the bank's capital stock and 20% for transactions with all affiliates. Ê The approval was conveyed to JPMorgan in a letter to the bank's associate general counsel posted on the Fed's Web site. Ê JPMorgan "has requested that the Board exempt from section 23A and Regulation W, for a period of 18 months, certain covered transactions between JPMC Bank and its affiliates, up to an aggregate of 50% of the bank's capital stock and surplus, to facilitate the acquisition by JPMC of Bear Stearns," the letter from the Fed stated. Ê The exemption would be phased out gradually and expire on Oct. 1, 2009, the Fed said. Ê The Fed has granted similar requests before to facilitate mergers. Ê As a condition of the temporary waiver, JPMorgan "must guarantee the performance of the affiliate for the benefit of JPMC Bank in connection with any exempt extension of credit or guarantee by JPMC Bank," the letter stated. Ê In addition, the Fed approved a request by JPMorgan allowing it "for a period of 18 months, to exclude from its total risk-weighted assets (the denominator of the risk based capital ratios) any risk-weighted assets associated with the assets and other exposures of Bear Stearns, for purposes of applying the risk-based capital guidelines to the bank holding company." Ê It also granted a request by JPMorgan to exclude for 18 months "from the denominator of its tier 1 leverage capital ratio any balance-sheet assets of Bear Stearns acquired by JPMC, for purposes of applying the leverage capital guidelines to the bank holding company," according to the letter. Ê As a condition of the approval, the amount of Bear Stearns assets excluded from JPMorgan's risk-weighted assets can't exceed $220 billion. "The amount of the exemption will be reduced by one-sixth in each subsequent quarter" and expire on Oct. 1, 2009, the letter from the Fed stated. Ê The amount of assets excluded in the tier 1 leverage capital guidelines can't exceed $400 billion. The exemption will be similarly phased out over 18 months. Ê "These regulatory capital exemptions would assist JPMC in acquiring and stabilizing Bear Stearns and would facilitate the orderly integration of Bear Stearns with and into JPMC," the letter stated. Ê JPMorgan "has committed to remain well capitalized
.. during the term of the exemptions, even without the regulatory capital relief provided by the exemptions," the letter stated.
-By Brian Blackstone, Dow Jones Newswires; 202-828-3397; brian.blackstone@dowjones.com |
