J.P. Morgan may be dead, but his firm is coming to the rescue of Wall Street once again:
In a shocking deal reached on Sunday to save Bear Stearns, JPMorgan Chase agreed to pay a mere $2 a share to buy all of Bear — less than one-tenth the firm’s market price on Friday.
As part of the watershed deal, JPMorgan and the Federal Reserve will guarantee the huge trading obligations of the troubled firm, which was driven to the brink of bankruptcy by what amounted to a run on the bank.
Reflecting Bear’s dire straits, JPMorgan agreed to pay only about $270 million in stock for the firm, which had run up big losses on investments linked to mortgages.
JPMorgan is buying Bear, which has 14,000 employees, for a third the price at which the smaller firm went public in 1985. Only a year ago, Bear’s shares sold for $170. The sale price includes Bear Stearns’s soaring Madison Avenue headquarters.
The agreement ended a day in which bankers and policy makers were racing to complete the takeover agreement before financial markets in Asia opened on Monday, fearing that the financial panic could spread if the 85-year-old investment bank failed to find a buyer.
In the meantime, in apparent anticipation of a bad reaction in the financial markets to the Bear Sterns fiasco, the Federal Reserve is injecting more money into the credit markets:
WASHINGTON — Hoping to avoid a systemic meltdown in financial markets, the Federal Reserve on Sunday approved a $30 billion credit line to engineer the takeover of Bear Stearns and announced an open-ended lending program for the biggest investment firms on Wall Street.
In a third move aimed at helping banks and thrifts, the Fed also lowered the rate for borrowing from its so-called discount window by a quarter of a percentage point, to 3.25 percent.
The moves amounted to a sweeping and apparently unprecedented attempt by the Federal Reserve to rescue the nation’s financial markets from what officials feared could be a chain reaction of defaults.
Despite this, it’s looking like it will be a rough Monday for the markets. Markets in Asia and Europe both took a big hit, and the dollar hit a new low against the Yen.
March 17th, 2008 at 10:05 pm
So what do y’all think about this? It didn’t exactly rock the front pages, but jeez, financial panic, meltdown of the markets, run on the bank… sounds like 1929. I must admit I transferred some dogmeat investments over to bonds tonight, something that needed doing anyway. Is this what we’re to expect now – higher highs, lower lows, wild market swings, and the mortgage mess hasn’t even peaked yet?