JPMorgan Chase (JPM) is cutting back. The New York-based bank may cut 4,000 jobs as it integrates its purchase of Bear Stearns (BSC) and slims its cost structure with the economy slowing, Bloomberg reports. The report, citing a person familiar with the situation, says half the job cuts may involve Bear Stearns staffers taking positions now filled by JPMorgan employees. The news comes just days after CEO Jamie Dimon said JPMorgan, which has 180,000 workers, was planning to hire 6,000 of the 14,000 workers employed by Bear.

Earlier this week, JPMorgan Chase raised its estimates of the cost of the Bear transaction, citing the losses suffered by Bear this year and the bad assets on its books, the Financial Times reported. Dimon says he still expects the deal to make money for JPMorgan, but he isn’t doing any victory laps. “I want to make it perfectly clear,” he told investors at a UBS conference, the AP reports. “Mission not accomplished.”

It has been a good day for the brokerage stocks. Shares of Merrill Lynch (MER) rose 8% after CEO John Thain said he won’t entertain talk of a breakup of the brokerage firm, which has been hit hard since last summer by heavy losses on mortgage-related securities. Thain told shareholders the entire industry has been affected by the debt meltdown and that the Merrill board should be spared criticism that’s based on “20-20 hindsight,” Bloomberg reported.

Another industry hard-charger who’s looking forward rather than backward is longtime Bear Stearns (BSC) honcho Ace Greenberg. Greenberg agreed to stay on with Bear buyer JPMorgan Chase (JPM) as vice chairman of Bear’s retail business, the bank said in a filing Thursday. Also signing on with JPMorgan is Jeffrey Mayer, who will get a $12 million bonus and $15 million in restricted stock when the firms’ merger closes. For his part, Greenberg “will be entitled to receive a payout of 40% of the commission revenue he generates,” and perhaps more: The filing notes that the former Bear chief “continues to have discussions with JPMorgan Chase regarding the terms of his employment, including additional economic terms.”

After Bear’s near collapse last month cost shareholders billions of dollars, there are surely a few employees and shareholders who see the hirings as adding a bit of insult to injury. But Greenberg, needless to say, isn’t one of them. “I’m very excited,” Greenberg told Bloomberg in an interview.

General Motors’ (GM) ResCap lending affiliate is getting new blood. The lender, which is majority owned by private-equity firm Cerberus, hired former Bear Stearns (BSC) mortgage chief Tom Marano as nonexecutive chairman, ResCap said Wednesday. He replaces Michael Rossi, who left last month for medical reasons. Marano brings with him Joshua Weintraub, formerly a senior managing director with Bear Stearns’ global mortgage operations, who has also been appointed to the board’s executive committee.

“The addition of these board members brings strong and fresh executive experience and operational expertise to ResCap’s Board of Directors,” said CEO Jim Jones. “In his more than 25 years with Bear Stearns, Tom Marano was instrumental in creating and expanding the firm’s mortgage business, including most recently as the person in charge of mortgage trading and origination.”

The news comes as JPMorgan Chase (JPM) seeks to retain the top traders at Bear, which JPMorgan agreed last month to purchase in a Fed-brokered fire sale. Meanwhile, Marano is going from one financially stressed firm to another. GMAC, which recently paid $607 million to cancel $1.2 billion worth of ResCap debt, sank $2.7 billion into the firm last year in a bid to shore up its finances, but the outlook for mortgage firms remains bleak as house prices fall and the economy slows. On the other hand, Marano’s arrival suggests ResCap isn’t about to give up just yet.

The white flag is flying higher than ever at Bear Stearns (BSC). Chairman Jimmy Cayne sold his entire stake in the brokerage firm Tuesday, according to a Securities and Exchange Commission filing Thursday afternoon. The filing says Cayne sold 5.6 million shares at $10.84 apiece for a take of $60.8 million. Update: Cayne’s wife sold her 45,669 shares as well, the filing says.

Cayne was CEO of the firm until he was replaced in January following revelations that he was off playing bridge during an August liquidity crisis that nearly ran the firm out of business. Bear recovered from that episode, only to agree earlier this month to be sold to JPMorgan Chase (JPM) for a token sum to avoid a bankruptcy filing.

Even after the price on that deal was renegotiated Monday to $10 a share from $2, some investors held out hope that Cayne and investor Joe Lewis might lead a rebellion that would result in a still higher price. Thursday’s news that Cayne has dumped his stock, which led to a 4% drop in Bear stock in after-hours trading, seems to confirm that scenario was a pipe dream.

Did JPMorgan Chase (JPM) overreach in its renegotiated purchase of Bear Stearns (BSC)? At the New York Times’ DealBook, Wayne State law professor Steven Davidoff writes that the new deal could face a tough challenge in the Delaware courts. Davidoff points to a provision that allows JPMorgan to buy 39.5% of Bear Stearns without shareholder approval - an arrangement that he believes the court may find coercive of Bear shareholders. “When (not if) it is challenged in a Delaware court, Bear will have to give a compelling justification for its 39.5% grant to JPMorgan,” Davidoff writes. “But at this point, given the JPMorgan guarantee and merger, can they do so?” With Bear investor Joe Lewis having promised to defend the value of his stock, we may soon find out.

Everyone seems to benefit from Monday’s renegotiated JPMorgan (JPM) purchase of Bear Stearns (BSC). Bear shares more than doubled, to $12.30 a share, after JPMorgan agreed to raise its all-stock bid for the cash-strapped brokerage firm to $10 a share from $2. There seems to be little reason to believe that the price will go even higher, given the provision in Monday’s deal that will allow JPMorgan to buy almost 40% of Bear even before a shareholder vote takes place. Accordingly, JPMorgan shares rose as well, as investors applauded the prospect that the deal can close soon - and that costly and time-consuming litigation can be avoided.

Meanwhile, U.S. taxpayers will benefit from a provision that reduces the Federal Reserve’s potential exposure to bad loans on Bear’s books. The New York Fed originally agreed to finance $30 billion worth of Bear’s assets without recourse, but the revised agreement has JPMorgan shouldering the first $1 billion of losses on that paper. Among other things, that arrangement should reduce criticism that the Fed is bailing out well-heeled investors at the expense of the public.

Likening the new structure to the deductible on an insurance policy, Jeff Miller points out at a Dash of Insight that the Fed’s motivation for arranging the Bear sale “was to avoid the systemic failure that might have started with Bear’s counterparties. The new deal terms accomplish this with a better alignment of risk and reward.” Seems like there’s not much to argue with there.

Maybe all those long-shot bets on Bear Stearns (BSC) stock are going to pay off after all. Buyer JPMorgan Chase (JPM) is on the verge of quintupling its offer for the cash-strapped investment bank to $10 a share, according to news reports Monday. The Wall Street Journal says a revised deal would be announced after a Bear Stearns board of directors meeting Monday morning.

The New York Times, which first reported the new deal talks, said the higher offer aims to placate angry shareholders who could spike the deal when it comes up for a vote later this spring. JPMorgan made its $236 million bid for Bear Stearns just a week ago, after the firm nearly collapsed following a run of cash withdrawals by its hedge fund customers. The $2-a-share bid stunned the employees who make up a substantial part of Bear Stearns’ shareholder base and spurred a rebellion by investors led by billionaire currency trader Joseph Lewis, who was buying the stock last summer in the $120 range only to see it lose nearly all its value. The Times reports that the talks began after it came to light that mistakes in the original buyout target could force JPMorgan to guarantee Bear’s trades even if shareholders vote down the deal - a provision that gives the holdout holders some leverage.

According to the Journal, terms of the revised deal are “substantially different” than the one announced a week ago. Specifically, the Federal Reserve’s role in the transaction is expected to change, the paper said. No details were forthcoming, but the original offer called for the Fed to guarantee as much as $30 billion to finance the deal.

Share of Bear Stearns spiked nearly 70 percent in premarket trading Monday. It looks like another interesting trading day ahead for Bear stock, which closed last week at $5.96 a share.

By James Ledbetter

Lots of robust response to this morning’s post on Joe Lewis’s Hail Mary attempt to get a better deal for Bear Stearns (BSC) than JPMorgan’s (JPM) $2-and-change per share, so here’s a bit of follow-up. A reader named Rod Richardson posted this comment:

Lewis seems to think that the alternative to the JPM deal is not bankruptcy but a better deal. You don’t explain why you rule out that possibility. Given that the artificially low mark-to-market values of some of Bear’s securities are driving this situation, it seems to me that an investor with deep pockets could make money by offering more than $2/share.

I think he’s right that this seems to be Lewis’s motivation. But a better deal seems very unlikely. For one thing, even if Bear shareholders vote down the deal, the agreement between Morgan and Bear does not allow them to accept another deal until 2009. That’s a powerful lever in the hands of Morgan’s Jamie Dimon. Another reason is that the Morgan deal has the blessing of the Federal Reserve; if another suitor enters in, lots of things could go wrong that could readily untangle a higher bid.

That’s why I wrote that taking the firm into bankruptcy would be the shareholders’ only resort - and a risky one at that. On this point, Felix Salmon at Portfolio.com insists that such a move would be suicidal:

If Bear goes into bankruptcy, there wouldn’t be some nice indefinite Chapter 11 proceeding where the company can be operated as a going concern and eventually sold for a large sum of money. No, broker-dealers have to file for Chapter 7 liquidation, where Bear’s assets would be dumped unceremoniously onto a market which clearly has no capacity to buy them all. That’s what the Fed was trying to avoid, and that’s why bankruptcy would result in no money at all for shareholders.

That’s almost right. That is: there is definitely wording in the bankruptcy code to this effect. However, I interviewed Steve Harbeck, CEO of the Securities Investor Protection Corporation, who confirmed my recollection that in the past other securities firms have found loopholes that allowed them to deploy Chapter 11 bankruptcy. Notably, Drexel Burnham and Thomson McKinnon used Chapter 11 in 1990, by convincing regulators that they’d shed themselves of customer obligations. Maybe Lewis and cohorts are relying on this hazy history, but Salmon’s broader point is well-taken: Bankruptcy in this situation is a crap shoot at best, and some shareholders will no doubt want to take Morgan’s money and call it a day.

And yet: there are clearly shareholders who view bankruptcy as desirable. Dow Jones has posted a comment from a BSC shareholder named Nye Lavalle, who says:

since many of Bear’s ABS/MBS deals were really financing of receivables and not “true sales,” the bankruptcy system, trustees, and courts could very well seek the return of those assets back to BSC. Regardless of the outcome, there is and will be litigation. So, the best forum with the most advantageous laws would be the Federal Bankruptcy Court for Bear shareholders, investors, employee pension funds etc…

Are such people deluded? Not my call to make. What I do know is that BSC is trading at almost $6 a share today, nearly three times the price that Morgan has offered. That indicates that somebody, somewhere thinks they see a plausible alternative to the Morgan offer. I’m just waiting for that someone to tell me what it is.

By James Ledbetter (Colin is off for two days, so you’re stuck with me.)

On Tuesday morning, I asked the assembled financial wisdom at a Fortune.com meeting - this included Roddy Boyd, Allan Sloan, and Shawn Tully - if there was any scenario by which JPMorgan’s (JPM) bargain-bin deal to buy Bear Stearns (BSC) for $2 a share could fail. The answer came back a resounding no, for convincing reasons I will detail below.

Today, though, the answer seems slightly less clear. The Wall Street Journal reports that billionaire Joe Lewis - who owns some 12 million Bear shares - has filed with the SEC to register his dissatisfaction with the proposed deal. (On top of his already substantial holdings, Lewis added 569,000 shares on March 13 at the painful price of $55.13 apiece.) In language that nicely echoes Malcolm X, Lewis says that he and his crew “will take whatever action that they deem necessary and appropriate” to protect the value of their investment. That could mean, the Journal reasonably predicts, making an alliance with Bear employees - who own 30% of the stock - and other disaffected shareholders, like Bruce Sherman’s Private Capital Management, which last I checked owned more than 6% of Bear. Add that to Lewis’s 8% and it’s not impossible to see a majority of shareholder voting to reject Morgan’s shrewd offer.

Could it really happen? My understanding is that, in order to shun the JPMorgan offer, the company would have to declare bankruptcy, and in bankruptcy the shareholders have to get in line behind other creditors, thus by no means guaranteeing a better outcome than $2 a share. On top of that, as Roddy pointed out on Tuesday, such a move would spawn litigation that our grandchildren will still be writing about some day. Moreover, it was argued, it still wouldn’t restore the fundamental asset that Bear has lost, which is credibility: Even if Bear could rise from the dead, why would anyone want to do business with them at this point? Those remain powerful arguments. But even if their plan is a long shot, you could lose a lot of money betting against furious billionaires hellbent on protecting their assets.

A huge rally in the financial sector, led by the latest Fed rate cut and sharp gains at Bear Stearns (BSC) and Lehman Brothers (LEH), is quieting fears about the health of the banking system. The gains come in the wake of solid first-quarter earnings from Lehman and a move into Bear Stearns stock by debtholders who want to make sure the $2-a-share buyout deal wins approval whenever Bear shareholders meet to vote on the $236 million proposal.

But don’t drop your guard: The interest-rate spread between high-yield bonds and comparable U.S. Treasuries has risen to 862 basis points, Bespoke Investment Group notes - the biggest spread since the dog days of 2002. That spread, which reflects the premium investors are demanding to hold riskier assets than supersafe Treasuries, suggests that fear of a financial meltdown is far from vanquished - which could make Wednesday another dicey session for bank and brokerage stocks.