Bear Stearns Weekend Talks Reveal 2 Key Contenders

Department heads at Bear Stearns met with officials at J.C. Flowers and JPMorgan Chase Saturday afternoon to give an overview of their business divisions, including headcount and profit and loss positions, CNBC has learned.

The discussions indicate that potential bidders for Bear have been narrowed to those two

firms, although other last minute contenders could still weigh in, according to one source aware of the talks.

While Bear would certainly like more bidders, time has become a major issue for the investment bank.

On Friday Bear Stearns , the fifth largest U.S. investment bank, said a cash crunch forced it to turn to the Federal Reserve and JPMorgan for emergency funds, intensifying fears of a widening global credit crisis and driving its shares down as much as 50 percent. It also stepped up efforts to find a buyer.

On the same day S&P lowered its long-term counterparty credit rating on Bear to "BBB" from "A," and it placed long-and short term ratings on credit watch with negative implications.

Because of that S&P downgrade, bankers have now come to the conclusion that a deal must be done by Monday morning because no one on the street will trade or lend to Bear Stearns, which is rated a notch above junk bond levels. If the downgrade hadn't happened, Bear management would have had more time to work the Street for a deal, sources said.

The big question in the talks is price. Bear has been touting its $80 a share book value but no one is willing to pay that. It is very hard to value the firm and its businesses. One person close to the deal said the price could end up as low as $15 a share or less, depending on Bear's liabilities and balance sheet. Aside from its clearing and prime brokerage operations, which get good marks, the rest of Bear's business lines are considered mediocre at best, according to various Wall Street executives.

The stress level at Bear among executives whose life savings is tied up in the company's stock was palpable Saturday as the meetings to determine the value of Bear continued.

"Everyone is here," said one Bear Stearns official on Saturday evening. "The dining room is open, the whole thing is open. It's just one big 10-hour meeting."

If there's no deal Bear Stearns will have to file for bankruptcy, executives said.

People close to the deal say JPMorgan is the likely candidate to take over Bear because the firm has the capital to purchase the entire firm. J.C. Flowers might just bid on pieces of the firm rather than the whole.

Still it is not clear what JPMorgan CEO Jamie Dimon will do if his company buys Bear; he hates the  bank and doesn't need traders. The likely scenario, sources say, it that he gets rid of most everything except prime brokerage and clearing operations. He also apparently likes the Bear building which is around the corner from the less elegant Chase headquarters.

One big problem is that whoever buys Bear will want to retain some of the talent. However, they are already being offered jobs elsewhere.

In the meantime, the Bear debacle is a huge blow to New York City and its Metro-area economy where most of Bear's workforce lives. Many will be out of work. Bankers and other execs have lost fortunes since many were paid in Bear stearns stock.

The Bear situation rocked bank stocks Friday. Shares of Lehman Brothers Holdings fell sharply, as did Morgan Stanley and Goldman SachsGroup.