Saguaro
03-17-2008, 12:12 PM
NEW YORK (Reuters)- A fire sale of Bear Stearns Cos Inc (BSC.N) stunned Wall Street and pummeled global financial stocks on Monday on fears that few banks are safe from deepening market turmoil.
Trying to assuage worries that the credit crisis is spinning out of control, President George W. Bush said the United States was "on top of the situation."
And the Federal Reserve geared up for a deep cut in interest rates on Tuesday to blow money into the fragile financial system -- the latest in a series of rate cuts that has brought down borrowing costs by 2-1/4 percentage points and hammered the U.S. dollar to record lows.
Staff at Bear Stearns' Manhattan headquarters were welcomed to work on Monday by a two-dollar bill stuck to the revolving doors -- a spoof on the bargain-basement price of $2 per share that JPMorgan Chase (JPM.N) is offering for the firm. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.
The combination of Bear Stearns' bailout and the Fed's offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.
And it scared market players worldwide.
"If you get a crisis of confidence in the wholesale banking space and something the size of Bear Stearns could go under, then people start to panic. You get a real fear factor," said Simon Maughan, analyst at MF Global in London.
The grim mood spread beyond Bear, Wall Street's fifth-biggest bank, as investors bailed from rival Lehman Bros (LEH.N) for fear it would be next to face a cash crunch. Lehman shares briefly touched a 6-1/2 year low and later traded down 20 percent.
JPMorgan shares, by contrast, jumped 10 percent after the bank worked out a deal to buy Bear for $236 million -- just 1.2 percent of what it was worth a little over a year ago. JPMorgan's chief, Jamie Dimon, a details-oriented Wall Street luminary with a track record of fixing up banks, also got the Fed to agree to finance up to $30 billion of Bear's assets.
CONNECTIVITY - NOT ALWAYS A GOOD THING
The financial world is more interconnected than ever and the merest whiff of trouble can result in an old-fashioned run on a bank: trading partners and funds pulling out money and calling in loans. Indeed, Bear's fall shows how fast things can change on Wall Street.
Bankers around the world were already fretting about job losses because of the endless series of credit losses and paralyzed markets. The mayhem could spill over to Main Street because the financial industry is at the heart of a U.S. economy where services make up 80 percent of the pie.
That's why policymakers worldwide have pulled out all the stops, from cutting interest rates to flooding the financial system with cash to prevent it from seizing up.
Government funds from the booming Gulf and Asia-Pacific countries have pitched in by buying stakes in big-name banks such as Citi (C.N) and brokerages such as Merrill Lynch (MER.N) worldwide.
This time around, though, the funds were conspicuously absent from Bear's bailout -- spelling trouble ahead.
"There's no way anybody's going to catch a falling knife. Why come in now?" said Craig Russell, Beijing-based chief market strategist at Saxo Bank.
The problem is that banks need the cash from these so-called sovereign wealth funds to shore up their balance sheets. So shares of European banks -- including UBS (UBSN.VX) in Switzerland, HBOS (HBOS.L) in Britain and SocGen in France (SOGN.PA) -- fell more than 10 percent Monday on concerns they have to take bigger hits -- haircuts, in Wall Street speak -- on their holdings of risky credit assets.
IN MOURNING
The sale of Bear came as a shock to the firm's 14,000 staff, who own roughly 30 percent of the company.
"The valuation is virtually nothing," said a Singapore-based Bear Stearns employee. "It is indeed rock bottom. We have tanked. It's very, very sad. Everyone is in mourning."
The mood among U.S. staff was similarly solemn. "My job's been eliminated," said one male employee arriving for work in New York. He'd been given 90 days' notice.
Bear Stearns was caught in a tailspin after speculation swirled last week that it faced problems and its cash reserves were drained by fleeing customers.
JPMorgan picked it up on the cheap -- although the bank estimated the total price tag at $6 billion to account for litigation and severance costs.
A lot of people lost a lot of money: Entrepreneur Joseph Lewis, a reclusive Englishman who made a fortune trading currencies, bought a stake of about 10 percent in Bear and stands to lose around $1 billion.
That has the phones ringing off the hooks at law firms that specialize in suing corporations whose stock has plummeted.
"Shareholders don't contact me when they are happy with the way things are going with their investments," said Ira Press, a lawyer at class-action firm Kirby McInerney.
http://news.yahoo.com/s/nm/20080317/bs_nm/bearstearns_fed_dc;_ylt=Atd4UBr.RTIHE7r0ttDA5eis0N UE
Trying to assuage worries that the credit crisis is spinning out of control, President George W. Bush said the United States was "on top of the situation."
And the Federal Reserve geared up for a deep cut in interest rates on Tuesday to blow money into the fragile financial system -- the latest in a series of rate cuts that has brought down borrowing costs by 2-1/4 percentage points and hammered the U.S. dollar to record lows.
Staff at Bear Stearns' Manhattan headquarters were welcomed to work on Monday by a two-dollar bill stuck to the revolving doors -- a spoof on the bargain-basement price of $2 per share that JPMorgan Chase (JPM.N) is offering for the firm. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.
The combination of Bear Stearns' bailout and the Fed's offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.
And it scared market players worldwide.
"If you get a crisis of confidence in the wholesale banking space and something the size of Bear Stearns could go under, then people start to panic. You get a real fear factor," said Simon Maughan, analyst at MF Global in London.
The grim mood spread beyond Bear, Wall Street's fifth-biggest bank, as investors bailed from rival Lehman Bros (LEH.N) for fear it would be next to face a cash crunch. Lehman shares briefly touched a 6-1/2 year low and later traded down 20 percent.
JPMorgan shares, by contrast, jumped 10 percent after the bank worked out a deal to buy Bear for $236 million -- just 1.2 percent of what it was worth a little over a year ago. JPMorgan's chief, Jamie Dimon, a details-oriented Wall Street luminary with a track record of fixing up banks, also got the Fed to agree to finance up to $30 billion of Bear's assets.
CONNECTIVITY - NOT ALWAYS A GOOD THING
The financial world is more interconnected than ever and the merest whiff of trouble can result in an old-fashioned run on a bank: trading partners and funds pulling out money and calling in loans. Indeed, Bear's fall shows how fast things can change on Wall Street.
Bankers around the world were already fretting about job losses because of the endless series of credit losses and paralyzed markets. The mayhem could spill over to Main Street because the financial industry is at the heart of a U.S. economy where services make up 80 percent of the pie.
That's why policymakers worldwide have pulled out all the stops, from cutting interest rates to flooding the financial system with cash to prevent it from seizing up.
Government funds from the booming Gulf and Asia-Pacific countries have pitched in by buying stakes in big-name banks such as Citi (C.N) and brokerages such as Merrill Lynch (MER.N) worldwide.
This time around, though, the funds were conspicuously absent from Bear's bailout -- spelling trouble ahead.
"There's no way anybody's going to catch a falling knife. Why come in now?" said Craig Russell, Beijing-based chief market strategist at Saxo Bank.
The problem is that banks need the cash from these so-called sovereign wealth funds to shore up their balance sheets. So shares of European banks -- including UBS (UBSN.VX) in Switzerland, HBOS (HBOS.L) in Britain and SocGen in France (SOGN.PA) -- fell more than 10 percent Monday on concerns they have to take bigger hits -- haircuts, in Wall Street speak -- on their holdings of risky credit assets.
IN MOURNING
The sale of Bear came as a shock to the firm's 14,000 staff, who own roughly 30 percent of the company.
"The valuation is virtually nothing," said a Singapore-based Bear Stearns employee. "It is indeed rock bottom. We have tanked. It's very, very sad. Everyone is in mourning."
The mood among U.S. staff was similarly solemn. "My job's been eliminated," said one male employee arriving for work in New York. He'd been given 90 days' notice.
Bear Stearns was caught in a tailspin after speculation swirled last week that it faced problems and its cash reserves were drained by fleeing customers.
JPMorgan picked it up on the cheap -- although the bank estimated the total price tag at $6 billion to account for litigation and severance costs.
A lot of people lost a lot of money: Entrepreneur Joseph Lewis, a reclusive Englishman who made a fortune trading currencies, bought a stake of about 10 percent in Bear and stands to lose around $1 billion.
That has the phones ringing off the hooks at law firms that specialize in suing corporations whose stock has plummeted.
"Shareholders don't contact me when they are happy with the way things are going with their investments," said Ira Press, a lawyer at class-action firm Kirby McInerney.
http://news.yahoo.com/s/nm/20080317/bs_nm/bearstearns_fed_dc;_ylt=Atd4UBr.RTIHE7r0ttDA5eis0N UE