(CBS/AP) Wall Street extended its big advance Monday as investors applauded a new agreement that will give Bear Stearns Cos. shareholders five times the payout that was set in a JPMorgan Chase & Co. buyout deal a week ago. Investors were also pleased by a stronger-than-expected housing report, and sent the Dow Jones industrial average nearly 190 points.
JPMorgan boosted investors' optimism by lifting its offer for Bear Stearns to $10 per share from $2. The revised plan is aimed at soothing Bear Stearns shareholders upset over JPMorgan's earlier offer, which was made at the behest of the Federal Reserve when Bear Stearns was near collapse.
Shares in the investment bank jumped $3.42, or 57 percent, to $9.38, while JPMorgan rose 58 cents to $46.55.
Beyond the troubles of the financials, Wall Street was examining the housing sector - the root of much of investors' angst. A real estate trade group said sales of existing homes rose rather than declined in February, as had been expected.
The Fed's move and even the housing figures appeared to alleviate some of Wall Street's concerns about souring mortgage debt and lenders' resulting hesitance to grant loans of any sort. The latest Bear Stearns deal signals that investors' losses might not be as sizable as feared.
"The reason we've rallied the last three or four days is people are saying 'Hey, even if this paper is worth less than people think, the Fed is willing come in and buy it at some level,"' said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh.
The move was clearly aimed at diffusing a backlash among Bear Stearns shareholders who felt the original deal undervalued the 85-year-old institution. JPMorgan Chase Chief Executive Jamie Dimon spent most of the week trying to woo Bear Stearns employees, who collectively own about a third of the company.
A lot of people lost money, including Bear Stearns employees who were counting on stock for their retirement Bloomberg TV's Dierdre Bolton told CBS News' The Early Show.
"The Fed had a pretty unusual role in helping the two banks get together to begin with," says Bolton. "The idea was really supposed to be to stabilize the markets, but the Fed can't be seen using taxpayer money to bail out shareholders and has already drawn criticism on that account."
"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise," Dimon said in a statement, "and bring more certainty for our respective shareholders, clients, and the marketplace."
The new deal values Bear Stearns at about $1.19 billion - still a fraction of what the company was worth before its sudden near-collapse earlier this month. It also includes a provision for JPMorgan to buy 95 million new Bear Stearns shares immediately, which gives it a 39.5 percent stake in the company before shareholders have even voted.
The amended offer was Dimon's attempt to ward off any competition, and quickly move on with the acquisition. The two sides also changed certain guarantees JPMorgan made related to Bear Stearns' positions.
The new agreement also calls for the Federal Reserve - which helped broker the emergency deal to save Bear Stearns from failure - to provide a $30 billion term loan with portfolio assets put up as collateral. Those assets will be held by a newly created company managed by BlackRock Inc.
If any part of the portfolio defaults, JPMorgan will be on the hook to cover the first $1 billion in losses. As the assets are paid off, the Fed will receive principal plus any gains.
The Fed said the action is being taken with the support of the Treasury Department to "bolster market liquidity and promote orderly market functioning."
Alan Schwartz, Bear Stearns' embattled president and chief executive, has been vilified within the company for the past week for selling out too low. The company's 14,000 shareholders - most of whom depended on Bear Stearns' stock as part of their retirement plans - are facing significant job cuts if the deal goes through.
He said the substantial share issuance to JPMorgan "was a necessary condition" to maintaining Bear Stearns' financial stability.
"Our board of directors believes that the amended terms provide both significantly greater value to our shareholders, many of whom are Bear Stearns employees, and enhanced coverage and certainty for our customers, counterparties, and lenders," he said in a statement.
Bear shares had been much higher than its deal price last week in anticipation of a new buyout agreement. The stock surged on Monday, rising $5.34 to $11.30 after the new agreement was unveiled.
JPMorgan shares also rose, adding $1.79, or 3.7 percent, to $47.76 in morning trading.
