Bear Stearns Merchant Banking to spin off

The private equity arm of the fallen investment bank is ‘working aggressively’ to set up independent operations.

Bear Stearns Merchant Banking (BSMB), the private equity arm of defunct investment bank Bear Stearns, will spin off from new parent JPMorgan to become an independent private equity firm.

Final documentation is underway to transfer investments JP Morgan received through the merger with Bear Stearns to put them into a “passive vehicle.” JP Morgan would then become BSMB’s limited partner, senior managing director Gwyneth Ketterer told PEO.

The Bear Stearns Companies, now a subsidiary of JPMorgan, will continue to manage co-investments made alongside funds managed by BSMB.

“It’s been business as usual for us,” said Ketterer. “We’ve always operated pretty independently of Bear Stearns over the 11 years that we’ve been here more recently arguably even more so.”

The split was expected to take place “imminently,” Ketterer said, adding: “It’s likely all this will take place over the next 60 days and we’ve been working aggressively at it.”

Immediate steps for the group include obtaining a lease for new offices, approving plans for IT architecture design and selecting a name for the independent firm, according to Ketterer.

“JP Morgan has a vast real estate portfolio and they have been very kind to open up some of their leases to us and allow us to look at exploring taking out a sublease from them,” Ketterer said.

The folding of Bear Stearns had relatively little impact on the merchant banking division. “From a day to day business point of view, all of the trauma in March really had very little impact on us,” said Ketterer.

“This event has allowed us to immediately deepen and strengthen our relationships all over the street from where many of our colleagues at Bear Stearns are landing,” Ketterer said. Former senior executives from Bear Stearns are “peppered throughout Wall Street”, she said, specifically noting Citi, Merrill, JPMorgan and Bank of America.

In terms of personnel, the new group will make a small number of hires to perform functions previously supported by the back office of Bear Stearns. “We’re a group of 50-something today and I think we have enough critical mass to handle this,” Ketterer said of further hires.

BSMB currently manages more than $5 billion (€3.2 billion) in capital. Led by John Howard and specialising in mid-market buyouts, BSMB’s last fund, MBP III, closed on $2.7 billion in 2006.