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If anything comes of the Senate probe into the Fed-backed JPMorgan-Bear Stearns tie-up, it’s a higher price-tag on the deal, according to Sanford C. Bernstein analyst Brad Hintz.

Asked about the likely outcome of the investigation, Hintz told Thomson Financial News, “None. Come on, it’s a congressional investigation.”

The one other possible result could be that the price of the deal rises, the former Lehman Brothers chief financial officer said, because the current offer of $10 a share undervalues the troubled investment firm. Hintz has valued Bear Stearns at around $7 billion “in an unpressured environment.”

Now that the Fed is giving brokers access to the discount window, some on Wall Street may be speculating that Bear holders can use that as a bridge to negotiate a better deal, he said. But at the time the deal was struck, Bear was in no position to negotiate better terms.

“The fact the Bear stockholders were able to get what they did is very good,” Hintz said. “When Drexel failed, it got nothing.” Drexel Burnham Lambert Inc. was a major investment bank that failed in 1990 amid felony securities fraud charges relating to its heavy investment in junk bonds. At its height, it was the fifth-largest investment bank in the United States.

In exchange for the headaches related to buying Bear, JPMorgan gets Bear’s prime brokerage, high-net-worth and asset management operations, which Hintz sees as credible businesses for JPMorgan. The former executive countered arguments that the buy will saddle JPMorgan with a floundering mortgage business. “You can argue that the mortgage market won’t be as large,” Hintz said. “But you can’t make the argument that the mortgage market won’t exist. There will be something that will be the equivalent of Alt-A and securitizations.”

And although there are problems in Bear Stearns’ hedge fund business, “its clients will sleep soundly,” once it’s in JPMorgan’s hands, Hintz said.

If consummated, the deal “certainly is a feather in [the] cap for Jamie [Dimon] and a personal disaster for employees of Bear,” Hintz said. Pointing to the Fed’s rescue of Continental Illinois, Hintz noted that some may later ask why the Fed didn’t get some equity in the deal if it turns out to be as “wonderful” for JPMorgan as the Continental Illinois purchase turned out to be for the Fed.

In 1984, the Fed rescued Continental Illinois, the seventh-largest bank in the U.S. by deposits at the time. When no buyers could be found for the bank, and the government feared a failure would cause a crisis that would cripple the entire banking system, the Fed removed the bank’s executives and bought most of the its equity. It sold the last of its stake in the bank in 1991.

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With the ball in the hands of Team Subprime and the final seconds ticking off the clock, Bear Stearn’s players looked dejected. That is, until JPMorgan came off the Bear Stearns bench, stole the ball and drove the lane to finish with a game-winning lay-up. Punk Ziegel analyst Richard Bove, however, sees JPMorgan pulling up for a difficult 18-foot jump shot, not a sure thing.

“Investors believe that JPMorgan is underbidding for Bear Stearns and getting it at a bargain price,” the analyst said. “I do not. Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out.”

Bove is, of course, referring to JPMorgan’s acquisition of the troubled New York-based brokerage, which it announced on March 16 at an original offer of .05473 shares, or roughly $2 per share, of JPMorgan stock for every share of Bear Stearns. On Monday, JPMorgan CEO James Dimon quintupled his bid to roughly $10 per share, or 0.21753 shares of JPMorgan stock, in an attempt to appease angry Bear Stearns shareholders and trading partners who reacted negatively to the original deal. Dimon also agreed to purchase 95 million shares of Bear Stearns by April 8, giving it a 39.5% stake in the company, and to absorb the first $1 billion in losses on Bear Stearns’ portfolio with the Federal Reserve backstopping the next $29 billion (down from $30 billion a week ago).

Even at the increased bid, most of Wall Street felt that JPMorgan had struck quite the lucrative deal for itself. Bove, on the other hand, does not.

“The total cost of the transaction to JPMorgan could be $3.44 billion. Based on Bear Stearns’ original number of shares, the cost works out to be about $23.75 per share. Additionally, JPMorgan will report a 12-month loss of $6 billion to combine the two companies,” Bove said. “Add this to the purchase price and JPMorgan is paying about $65 per original Bear Stearns share.”

The Punk Ziegel analyst called Bear Stearns a “fully integrated mortgage company with a number of other businesses” and said JPMorgan certainly doesn’t need the mortgage operation. Nor does Bove feel that JPMorgan needs Bear’s other businesses either, saying that Morgan has a “much stronger” investment banking business and it is better in transaction processing. Bove also rejected arguments that the deal was valuable to JPMorgan in acquiring Bear Stearns’ lavish Manhattan headquarters, saying it is “just another piece of Manhattan real estate that it must rid itself of.”

Bove said the “key jewel” for JPMorgan is Bear’s prime brokerage business, but his understanding is that the business’ best customers have long since decamped to Goldman Sachs and that JPMorgan is going to have to work hard to get those people back.

Still, the analyst is most disturbed by the fact that JPMorgan used capital to buy a company that is losing market share, in a series of businesses that are declining in size, with a top management team that Bove describes as “sclerotic.”

“These same funds could have been used to buy a bank with top management, a solid balance sheet, which was gaining market share, in what is now a sector that is gaining market share,” Bove said.

He said the greatest benefit from the deal that could accrue to JPMorgan is that it may take advantage of accounting techniques that can be used to revalue Bear Stearns assets at par value.

“Finally, expect every aspect of this transaction is likely to be test in the courts with JPMorgan paying the bill all the way,” Bove added. “This is not a ‘lay-up’ at all.”

Lehman Brothers Holdings Inc. is slowly chipping away at its subprime mortgage exposure, Chief Financial Officer Erin Callan told investors during its first-quarter conference call Tuesday. But the brokerage firm won’t unload mortgage-related assets in a market that isn’t assessing them at their intrinsic value for the sake of improving its balance sheet. That could mean a mortgage-laden balance sheet for some time to come because, while Lehman has “the risk management discipline, the capital strengths, and certainly the liquidity to ride out the cycle,” Callan doesn’t expect “this extremely challenging period” is going to end in the near term.

But the company’s financial chief, in a calm and even tone, reassured investors that the company is doing fine. It has a strong liquidity position at $100 billion, plus an additional $99 billion at its regulated subsidiaries, both of which are unchanged since quarter-end.

Callan reported no issues with Lehman’s prime brokerage clients, noting that the company has “structured its liquidity framework for a decade to cover expected cash outflows for the next 12 months. And we do so without being able to raise new cash in the unsecured markets, or without having to sell assets that are outside our liquidity pool, comprised of cash equivalents.”

As Callan spoke, two peers gave Lehman their votes of confidence, erasing concerns that it might face liquidity problems like those which caused Bear Stearns’ demise.

Standard & Poor’s boosted its investment opinion to hold from sell after the call, saying Lehman’s comments “should assuage fears that it faces any type of liquidity crisis at this point.”

And Goldman Sachs, which hosted its own first-quarter conference call Tuesday, added Lehman to its Americas Buy List, saying liquidity fears “have been overestimated.” Goldman echoed Lehman’s view that the Federal Reserve’s liquidity plan will help ease many short-term cash problems and stabilize the financial markets.

Callan’s cool under fire and the upgrades fueled a rally in Lehman’s shares, which advanced 41% Friday to $44.84. They had fallen 19% Monday to $31.75 after hitting an intraday low of $20.25 - the lowest price seen for the stock since June 2000.

But perhaps most remarkable was Callan’s closing comment; she took the high road when given a chance to rejoice over Bear Stearns’ folly.

“We have great sympathy for our colleagues at Bear Stearns and are all very sad about what happened to that organization. So, yes, I’m sure there will be opportunities for market share. Yes, did they have capabilities in some of our core competencies, absolutely. But there are so many other things that relate to the fallout of Bear Stearns that are so fundamental to our industry, I would say it’s hard at the moment to get too focused on what’s the upside for us. I think there’s a lot to be thought about for the industry as a whole related to that situation.”

It seems there might be some integrity on Wall Street, after all.

In the wake of Bear Stearns’ meltdown, everyone on Wall Street seems to be trying to figure who else is vulnerable? The name that keeps coming up is Merrill Lynch. One day after Buckingham Research said the New York-based broker comes to mind on the “who’s next” list, Wachovia Capital Markets added fuel to investor concerns, crowning the company the “riskiest of the remaining monoline banks.”

“Merrill had gross subprime collateralized-debt-obligation exposure of $30.4 billion, 3.3 times the group average,” Wachovia told clients. “Merrill also had the worst liquidity ratio at 52% compared to Goldman Sachs and Lehman Brothers and now has the highest leverage in the industry at 31.9 times.”

Wachovia senior analyst Douglas Sipkin noted that Merrill ended 2007 with $79 billion in its excess liquidity pool and that the broker had $22.3 billion available to it through a number of credit facilities at the end of the fourth quarter. “In the event of a ratings downgrade,” Sipkin said, “Merrill Lynch must post additional collateral and make termination payments of $4 billion, highest among the group.” Another issue of note, Wachovia contends, is Merrill’s agreement on its $6.2 billion capital raise with Temasek Holdings and Davis Select Advisors. The firm said a price reset agreement is in place with the two parties in that if Merrill raises additional common stock or convertible securities with a price or reference below $48 a share within one year of closing, Merrill must pay both Temasek and Davis the aggregate excess amount.

Sipkin also believes Merrill is most at risk to future write-downs because it is still holding $3.5 billion in monoline exposure despite ACA Capital-related write-downs in the second half of 2007. The company also had leverage loan commitments of $18 billion at the end of the quarter. In terms of mortage-related positions, the analyst said Merrill has net exposure to $4.8 billion in super senior U.S. asset-backed securities CDOs, $2.7 billion in subprime residential mortgage-related positions, and $4.2 billion in subprime related securities in its bank investment portfolio.

But the news wasn’t all bad. “Merrill’s best-in-class retail broker business does provide a substantial fee-based cushion in the event of a banking and trading downturn,” Wachovia wrote.

Wachovia also believes the failure of Bear Stearns was “more a management issue than a market issue” and that the Fed’s recent action to allow dealers access to the discount window “will dramatically level the playing field for brokers.” Investors are showing themselves in Merrill’s camp so far Tuesday, sending the stock up almost 8% as the whole financial sector rallied on strong results from Goldman Sachs and Lehman Brothers.