Senior Bear Departures: Signs of Valuation Headaches for JP Morgan?

So just as Bank of America's once touted deal with Countrywide looks like it will turn out to be a slow-motion train wreck, the Bear deal has the potential to be a millstone rather than an asset to JP Morgan.

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A further sign that all is not well in former Bear-land is the sudden exodus of two former executives who were given very senior roles at Morgan. I came across this story by happenstance; it was broken by the Financial Times on a holiday weekend at 11:11 PM EDT (no coverage on any other outlets covered by Google News, nor on a search of the big financial blogs). So the pair was evidently forced out Friday to minimize press notice. And the article makes clear that mortgage valuations played a role in their removal.

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Jamie Dimon, JPMorgan’s chairman and chief executive, said last week that it would take a one-off charge of $9bn to cover the losses at Bear, as well as potential litigation costs, and severance and retention payments. That number is about 50 per cent more than its original estimate of the cost of the take-over. Mr Dimon said the higher costs were driven by losses and a bigger than expected amount of bad assets on Bear’s balance sheet.

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Update 3:45 AM: Alert reader Steve wrote to tell me another shoe has already dropped, and has been curiously gone largely unnoticed. JP Morgan's option to buy the headquarters is being contested by the ground lease holder. This is a huge oversight.

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In the lawsuit, filed in New York state court, 383 Madison LLC claimed that under a ground lease Bear used for the property, 383 Madison was supposed to be given an opportunity to buy the building if Bear ever considered selling it.