Hopeful investors bet on higher offer for Bear Stearns

Investors in the US were betting yesterday on a higher offer for Bear Stearns, as the bank's share price soared four times higher than Sunday's $2-a-share offer from JPMorgan Chase.

Shares in Bear stormed up 68.8 per cent to $8.12 on the New York Stock Exchange yesterday morning as investors predicted JPMorgan's $236m (£117m) takeover offer would meet resistance from Bear's shareholders. The stock retreated later on, but still closed nearly 23 per cent higher than the previous night's close at $5.91.

Rob Hegarty, managing dir-ector of the securities and investment practice at the res-earch firm TowerGroup, said: "There have been rumblings in the market that shareholders might not accept the offer, as well as rumours of higher bids. This has all given hope to some investors that Bear Stearns won't be sold for $2 a share." Mr Hegarty said the stock was also experiencing volatility on short-term trading.

Shareholders were taken by surprise by the merger. Last week, the bank was forced to rush out a denial that it faced liquidity problems after spec-ulation in the market, only to be bailed out with emergency funding by the Federal Reserve and JPMorgan days later. On Sunday, news emerged that Bear had agreed to a $236m offer from JP.

Shareholders have seen their holdings practically wiped out in days, and some have said they are unhappy with JP's offer. The second largest shareholder on the register, the British billionaire Joe Lewis, has already said he intended to reject the bid. Mr Lewis, whose holding has disintegrated from $967.8m on Christmas Eve to $22.1m under the terms of JPMorgan's offer, told CNBC: "I think it is a derisory offer and I don't think they will get shareholder approval." Last night, Mr Lewis was understood to be considering his options.

Mr Hegarty said: "This is where things become interesting. Do shareholders settle for the offer or risk the potential bankruptcy of Bear as they push to try and get a higher price?"

Another concern, should shareholders reject JPMorgan's offer, is the potential to lose the Federal Reserve's backing. "The Fed has provided backing to Bear Stearns via JPMorgan. If that bid is rejected, they are potentially putting the billions of dollars of backing at risk," Mr Hegarty added.