Wall Street retreats in wake of Bear Stearns buyout
Wall Street retreated Monday as Wall Street and other global markets reacted to JPMorgan Chase & Co.'s government-backed buyout of the stricken investment bank Bear Stearns Cos.
On top of supporting the buyout, the Federal Reserve took the extraordinary step of lowering the rate it charges to loan directly to banks on Sunday night - two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 percent.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. But the sale of Bear Stearns - and the fact that JPMorgan is valuing the fifth-largest Wall Street investment bank at a paltry $2.03 a share, or $240.1 million - stirred fear among investors worldwide about other banks' exposure to the troubled credit markets.
"That is just unbelievable," said investing consultant Scott Fullman. Bear Stearns stock closed at $30 a share on Friday. "It implies there is more risk in here than has been apparent."
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After stocks dropped sharply in Asia and Europe, the Dow Jones industrial average fell 70.02, or 0.59 percent, to 11,881.07. JPMorgan is one of the Dow components.
Broader indexes also fell. Standard & Poor's 500 index futures fell 16.31, or 1.27 percent, to 1,271.83, while the Nasdaq composite index fell 30.95, or 1.40 percent, to 2,181.54.
Bear Stearns fell 89 percent to $3.61 - still above the buyout price, implying that some shareholders believe the deal terms might change. JPMorgan was up $3.20 at $39.74; the Fed essentially guaranteed JPMorgan it would take responsibility for any risk the bank was taking in buying Bear Stearns.
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.37 percent from 3.44 percent late Friday.
The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.
Light, sweet crude dropped $3.49 to $106.72 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
