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JP Morgan buys Bear Stearns on the cheap
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Posted by: forwardone
JP Morgan buys Bear Stearns on the cheap
The Federal Reserve has backed a cut-price all-share takeover of beleaguered US investment bank Bear Stearns by JP Morgan Chase in order to avoid further panic on Wall Street.
It emerged last night that JP Morgan Chase will pay just $2 a share, or $240m, for Bear, the smallest of Wall Street’s big five banks, less than a tenth of its market value on Friday.
The US central bank has protected JPM shareholders by effectively underwriting $30bn of Bear’s sub-prime mortgage-backed bonds. JPM also gets special financing from the Fed.
The move, which follows Friday’s news that the New York Fed and JPM had provided emergency short-term funding to Bear, is designed to avoid the possible collapse of one of the country’s biggest banks and the subsequent panic anticipated on global financial markets.
Boss of JP Morgan Chase, Jamie Dimon, said the deal has already received approval from Washington.
In addition to last night’s announcement, the Fed said it was cutting its lending rate to financial institutions to 3.25% from 3.5% immediately in order to boost liquidity and help ease the pain of the credit crisis.
It has also created another lending facility for big investment banks to secure short-term loans.
Most analysts also expect the Fed to slice 75 basis points of US interestrates when it annonces its decision tomorrow. Some say a 1% drop in rates is possible.
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