Stock Market Braces for Bear Stearns Sale Fallout

Photograph of newspaper distributor in London by Sang Tan/AP

This is going to be a tough morning on Wall Street. World financial markets fell and are falling after yesterday's news that JP Morgan had purchased Bear Stearns for $2 a share, a grand price of $236 million for a company valued at $3.54 billion on Friday. Tokyo's Nikkei 225 index fell 3.7%, and Hong Kong's Hang Seng fell 5.25%. Currnetly, London's FTSE 100 has fallen 2.2%, France's CAC 40 has fallen 2.5% and the German DAX has fallen 3.3%.

Further, the Federal Reserve made two moves to "bolster market liquidity and promote orderly market functioning." The first was to allow the Federal Reserve Bank of New York to "create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets." The other was to decrease the rate on direct loans to banks 3.25% (from 3.5%). The Fed will also provide JP Morgan "up to $30 billion...to help it finance" its purchase of Bear Stearns.

The dollar is at "historic lows." Investment banks are among the stocks expected to be actively traded today. Lehman Brothers shares have dropped 25% in premarket trading--is it the next bank to fall?

Update 9:50 a.m. Stock market is down 127 points (about 1%). 84-year-old technical analyst Joseph Granville ("who joined E.F. Hutton in 1957" and publishes the Granville Market Letter in Kansas City, MO) told Bloomberg News, "We're in a crash, there's no other word to describe it. This is the worst I've seen and I've studied every bit of history all my life.''

And CNBC's Mark Haines just complained, "Did we not learn anything from Japan in the 1980s?"

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By Jen Chung in News on March 17, 2008 8:53 AM

Comments [rss]

JacqueMehoff

interesting, they got minorities distributing free papers in London, too.

too bad they don't have Pb there. God bless the 2A.

EastRiver

they should of known not to invest in their own bank, blah blah blah.

Well, they certainly shouldn't have had more than 10% of their stock holdings in one company. That's just common sense. But to get back to the original employee gripe, the person quoted acted as though the Fed screwed Bear. In other words, it was implied they could either have found a much better offer or somehow stayed independent. If there was a better offer out there we would have heard about it by now. Someone would have stepped in and bid $5 a share. And the Times also said Bear's lawyers were working on a Chapter 11 filing over the weekend at the same time as talks were going on with the Fed and JPMorgan.

And considering Bear declined to help out in 1998 with Long Term Capital's rescue schadenfreude comes to mind.

JacqueMehoff

here we go again, blah blah blah,

they should of known not to invest in their own bank, blah blah blah. what's the price of Pb now?

babyhitler

127 points is not too bad. I was expecting more.

BQE

The reason for the 30 Billion dollar gift to JP Morgan (for the 300 Million purchase of Bear) is because Bear had racked up debts that large (or larger) that it could not pay off. Since JPM is buying Bear, they also take responsibility for their liabilities.

Since the Fed could not allow Bear to go under, someone had to buy them. The only way the Fed could get someone (i.e. JPM) to buy them was to cover Bear's debts for the buyer.

EastRiver

EastRiver, I bet it's safe to say that at least 50% of the employees at Bear are not Bankers, but support staff...

And as such, support staff should not have had their entire net worth tied up in Bear Stearns stock. Sure it sucks losing your job but what makes them any different from anyone else in the world that loses a job and doesn't get to complain about it to the New York Times? And really, I question if a support staffer was the one quoted in the Times anyway.

S.D.

Matty, I bet we're not alone...

If the people ruining, er I mean running the Fed are trying to help the Economy or at least the Market: PLEASE JUST FUCKING STOP!!!!

Cutting the Rate, yet again, and this Corporate Welfare ISN'T Helping...

EastRiver, I bet it's safe to say that at least 50% of the employees at Bear are not Bankers, but support staff...

Ethan

The $200 billion bail-out for predator banks and Spitzer charges are intimately linked.

MFer

The Fed's action is supposed to sure up the entire market from a massive collapse. That's how it helps everyone. And if it works, JP Morgan will be the big winner.

This is what happens when you play bridge at the poker table.

mocanlagunas

Hopefully all of wall street ers will commit suicide this time...

but really, nothing is going to happen... the poor will be poorer as always... yeah, that's me...

Jen Chung

I think the idea is that if Bear Stearns were not sold and went bankrupt today, the market would be in much, much worse free fall today.

EastRiver

eyekantspel, I think the whiners are the ones that will indeed weather this the best or have plenty of years ahead of them to make up for it and likely had less to lose e.g. 20-something analysts. But I stand by my earlier assessment because most people go into investment banking to make fast money with the least amount of work.

matty

"Can someone explain how The Fed's Actions will help anyone other than JP Morgan???"

I actually can't.

sakebalboa

Panda bearish

petebfd

its gon' rain.

eyekantspel

I part ways with EastRiver on this one. No doubt some of the bastards who are whining now created this mess and are getting what's coming to them (and will emerge from this bloodied but still with more $ than the average person would earn in a lifetime), but many people who had nothing to do with this mess are now facing an uncertain future.

Tim N.

Hoo boy, here we go...

babyhitler

can someone explain how jp morgan is getting 30 billion dollars to buy something that's 300 million dollars?

S.D.

Can someone explain how The Fed's Actions will help anyone other than JP Morgan???

EastRiver

Bear employees whining that the Fed threw them under the bus. I think I hear violins. Maybe Suze Orman can hold a seminar on buying things on credit.