Bear Failure Could've Brought Down Lehman, Merrill

Letting Bear Stearns fail last March could've resulted in the failure of Lehman Brothers, Merrill Lynch and possibly Morgan Stanley, an analysis by JPMorgan Chase shows.

JP Morgan , which ended up buying Bear for $10 a share, considered not taking over Bear and letting its fate being determined by bankruptcy court. If that had happened, the bank's analysis shows, the market impact would have been devastating.

Lehman , Merrill and Morgan Stanley had huge counterparty exposure to Bear, which would have needed $8 billion in additional funds to survive. So a failure of Bear would've triggered failures by possibly all three.

Still, some people at JP Morgan weighed letting Bear and the rest fail because they would have eliminated at least two and possibly four competitors in about a week.

Ultimately, JP Morgan decided to go ahead with the acquisition, partly because of pressure from the Federal Reserve, and partly because of the initial offer to take over Bear for $2 a share.