Bear Stearns sold to JPMorgan in discount takeover, Fed announces rate cut

Source: Exec Digital USA

Date :17/03/2008 03:57:37

JPMorgan Chase rescues Bear Stearns from collapse in an eleventh hour deal.

The bank once worth $140 billion was last night sold to its rival for the rock-bottom price of $236 million.

After a weekend of frenzied negotiating, Bear Stearns’ board approved a stock-for-stock buyout at a valuation of $2 per share, a 94 percent discount to the Wall Street investment bank’s closing share price of $30 on Friday night.

Last week, the bank had been trading at $30.20 a share, down 47 percent.

Alan Schwartz, Bear Stearns’ chief executive, said the sale is the “best outcome” for customers.

Funding alternatives

The credit crisis seems to have stepped up a gear as the leading financial institution sought assistance after a week of persistent concerns about whether it could continue to meet its obligations.

Last week, Bear Stearns said it was in talks with New York-based JPMorgan 'regarding permanent funding or other alternatives.'

The bank may be the smallest of the Wall Street big five, but it is the second-largest underwriter of U.S. mortgage bonds, and investors have been rushing to escape.

According to reports, Bear had been unable to borrow from other dealers, leading to the intervention by the U.S. Federal Reserve.

The U.S. central bank has pledged $30 billion of special financing to fund Bear Stearns’ less liquid assets.

Rate cut

Following on from its intervention, the Fed also made the shock announcement that it has approved a cut in its emergency lending rate to financial institutions by a quarter of a percent to 3.25. The new lending facility will be available to big Wall Street firms from today.

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a conference call Sunday evening.

"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," said Richard Yamarone, an economist at Argus Research, on hearing the news. With the market as tempestuous and unpredictable as this however, many are wondering what else, if anything, can be done.

March 17, 2008