JPMorgan Chase, With Federal Reserve Bank of NY, to Provide Funding to Bear Stearns
NEW YORK (AP) — The federal government and JPMorgan Chase & Co. teamed up on a bailout of Bear Stearns Cos. on Friday, a last-ditch move to save the investment bank, which acknowledged its dire financial straits after a week of firm denials.
Bear Stearns lost half of its value within 30 minutes of the market open.
While it was not clear exactly how much money Chase would pump into Bear, a person familiar with the bailout, who spoke on condition of anonymity because the talks are private, said Chase may end up buying Bear Stearns outright.
Bear Stearns said in a statement it is working with JPMorgan Chase to find permanent strategic alternatives to alleviate the liquidity problems, but could not guarantee they would be successful.
JPMorgan Chase is providing secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York. Bear Stearns and the Federal Reserve approached JPMorgan Chase about the financing and a potential deal, according to the source.
Rumors have persisted throughout the week that Bear Stearns was facing major liquidity problems, but the investment bank's chief executive initially denied those rumors.
"Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," Bear Stearns president and chief executive, Alan Schwartz, said in a statement. "Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."
In a memo sent to employees, Schwartz said the temporary financing would allow the company to "get back to business as usual."
The company has struggled since the middle of 2007 due to the fallout in the mortgage and credit markets. Last summer, two hedge funds worth billions of dollars managed by Bear Stearns collapsed because of bad bets on securities backed by subprime mortgages — loans given to customers with poor credit history.
JPMorgan Chase said the financing would not expose its company to any material risk.
Shares of JPMorgan Chase fell 5.4 percent.
The Federal Reserve has not yet released its own statement and did not immediately comment on the news.
AP Business Writers Madlen Read and Joe Bel Bruno in New York contributed to this report.
