Investments: Wall Street crunch as Bear Stearns falls
Bear Stearns bought out for $236m in fire sale
Monday, 17 Mar 2008 09:24
Wall Street investment bank Bear Stearns is to be bought out by rival JPMorgan Chase at a knock-down price of $236 million (£116 million) as the credit crisis claims another victim.
Bear Stearns suffered a similar fate to Northern Rock as liquidity shortages and a run on assets from hedge funds led it to admit problems on Friday.
The deal values the investment bank at $2 (£0.98) a share – down from $169 (£83) a share a year ago.
A 28-day secured loan facility was agreed with JPMorgan on Friday after the bank admitted market rumours about its position had led to liquidity problems.
Alan Schwartz, president and chief executive of Bear Stearns, said: "We have tried to confront and dispel these rumours and parse fact from fiction.
"Nevertheless, amid this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."
After the initial loan facility was launched, JPMorgan stepped in to make a full offer for Bears Stearns with the backing of a $30 billion (£14.8 billion) Federal Reserve loan.
The boards of both firms have approved the deal, along with federal authorities, but shareholder agreement is still needed, but JPMorgan is guaranteeing the trading obligations of Bear Stearns.
Jamie Dimon, chairman and chief executive of JPMorgan, said: "JPMorgan Chase stands behind Bear Stearns.
"Bear Stearns' clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns' counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner."
Mr Schwartz added: "The past week has been an incredibly difficult time for Bear Stearns.
"This transaction represents the best outcome for all of our constituencies based upon the current circumstances."
On Sunday the Fed also reduced its discount rate – the rate at which it leads to banks – to 3.25 per cent in a bid to boost liquidity in the markets.
A sizeable US interest rate cut is also expected later this week as the US economy looks towards slowdown.
Recommended ...
Fill in one simple form and we will put you in touch with an investments advisor who will compare investment opportunities and provide you with a free no obligation investment quote.