Bear Stearns Plunges 49%

123jump.com Staff
14 Mar, 2008
New York City

Bear Stearns plunges 49% in the morning trading after it agreed for a secured credit facility with JP Morgan. The company in a press release said that its capital position has deteriorated in last 24 hours and is working with JP Morgan to arrange for a permanent financing. The emergency financing arranged with the help of the New York Fed suggests the gravity of th situations. The news also dragged Lehman Brothers stock lower by 10%.

[R]10:45 AM New York – Bear Stearns plunges 49% after it arranges a credit facility with JP Morgan with the help of the New York Fed.[/R]

The Bear Stearns Companies Inc. announced today it reached an agreement with JPMorgan Chase & Co to provide a secured loan facility for an initial period of up to 28 days allowing the investment bank to access liquidity as needed. Bear Stearns also announced that it is talking with JPMorgan Chase & Co., regarding permanent financing or other alternatives.

The New York Fed will loan the funding to JP Morgan which will then lend this money to Bear Stearns to meet its capital requirements. The fact that Bear could not wait till the next Fed auction on March 27th, unnerved the market.

Bear Stearns only on March 10th denied rumors that it lacked access to liquidity and its executive chairman Ace Greenberg said on CNBC television network that the company has access to enough capital and speculations are unfounded.

The company stated in a press release, that, “(there) is absolutely no truth to the rumors of liquidity problems that circulated today in the market”. Alan Schwartz said, “Bear Stearns’ balance sheet, liquidity and capital remain strong.”

Bear Stearns ((BSC)) stock plunged 49% or $27.63 to $29.28 and traded as low as $26.85.

Today in a press release Alan Schwartz, president and chief executive officer of Bear Stearns, said, ""Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.""

Bear Stearns will announce its first quarter 2008 financial results on Thursday, March 20, 2008,

At the end of November according to a filing with the SEC, Bear Stearns had short term unsecured debt of $11.6 billion and secured debt of $12.4 billion. The brokerage firm also had $68.53 billion in long term debt.

Lehman Brothers ((LEH)) fell 10% or $4.60 to $41.35 after trading as low as $39.25.