Tokyo Down 3.7% On Bear Fire Sale

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

Stocks in Japan and in Asia plunged after the fire sale of Bear Stearns, the fifth largest investment bank in the U.S. to JP Morgan. The news sent shock waves in the financial markets in Asia with Mumbai, Shanghai, Hong Kong, and Tokyo declining sharply. In Tokyo trading Nikkei 225 declined 3.71% or 454.09 to 11,787.51, and the broader Topix Index fell 3.7% or 43.58 at 1,149.65.

[R]5:00AM New York, 7:00PM Tokyo - Bear Stearns fire sale to JP Morgan and rising yen drag Tokyo lower.[/R]

Stocks in Japan fell after investors were unnerved by deteriorating conditions in the credit markets after JP Morgan Chase announced yesterday that it has acquired struggling investment bank Bear Stearns. A rising yen also negatively impacted on exporters, especially carmakers.

In Tokyo trading Nikkei 225 declined 3.71% or 454.09 to 11,787.51, and the broader Topix Index fell 3.7% or 43.58 at 1,149.65.

In the first section of the Tokyo Stock Exchange 11 billion shares worth 1.1 trillion yen were traded and in the second section 297 million shares valued at 4.9 billion yen changed hands.

Of the Nikkei 225 stocks 7 gained, 217 declined and 1 was unchanged. Tokai Carbon Co. led gainers in the Nikkei 225 index shares with a rise of 3.57% followed by increases in Sumitomo Metal Mining of 2.72%.

Other commodity stocks gained as well. Nippon Steel advanced 0.22%.

JP Morgan to buy Bear Stearns

JPMorgan Chase & Co. announced on its web site yesterday it is acquiring The Bear Stearns Companies Inc. after the Boards of Directors of both companies unanimously approved the stock-for-stock exchange transaction.

JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock and based on the closing price of March 15, 2008, the transaction would have a value of approximately $2 per share. The deal was actively and supported by the Federal Reserve Bank. The news of the deal, which amounts to a fire sale of the fifth largest investment bank, sent shock waves around the world.

According to the press release, the Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies have given necessary approvals.

Besides ordinary financing through the Discount Window, the Fed has also agreed to fund up to $30 billion of Bear Stearns'' less liquid assets to facilitate orderly portfolio liquidation. To consummate the deal, rapidly, the Fed had to guarantee to cover any losses to JP Morgan. The Fed backed bailout sent shudders in the investment community around the world.

Fed cut rate in surprise move

The Federal Reserve Chairman Ben Bernanke yesterday cut the discount rate for banks by 25 basis points to 3.25% and announced that the Fed and Treasury are cooperating to promote “liquid, well-functioning financial markets, which are essential for economic growth”.

The Fed also created a new lending facility for other financial institutions to boost market liquidity.

Bank of Japan injects 400 billion yen into market

Bloomberg news reported today that the Bank of Japan has injected 400 billion yen into the financial system to relieve heightened liquidity crunch.

It is believed that the BOJ want overnight call loan rates to trade within the target rate of 0.5%.

Government proposes to keep Fukui, DPJ rejects

The Kyodo news online service reported that the government today proposed to extend the term of incumbent Bank of Japan Governor Toshihiko Fukui’s term and his deputy Toshiro Muto.

However, the opposition Democratic Party of Japan quickly rejected the bid, stoking concerns of a vacuum at the central bank when Fukui’s term expires.

Gainers & Losers

Tokai Carbon Co. led gainers in the Nikkei 225 index shares with a rise of 3.57% followed by increases in Sumitomo Metal Mining of 2.72%, in Okuma Corp. of 1.61%, in JFE Holdings of 1.02%, and Toho Zinc Co. Ltd. of 0.89%.

Shinsei Bank Ltd. led decliners in the Nikkei 225 index shares with a drop of 11.32% followed by losses in Chuo Mitsui Trust of 9.39%, in Hitachi Ltd of 8.54%, in Furukawa Electric of 8.18%, and Mitsui Engineering & Shipbuilding of 8.12%.

Shinsei Bank Ltd and other financial stocks fell on heightened speculation that conditions in the credit markets are deteriorating.

Hitachi Ltd dropped after revising its profit estimate last week to a loss of 70 billion yen.

Exporters plunged after the yen rose the most in more than 12 years from 99.09 on March 14 to 95.76. Toyota Motor Corporation shed 5.1%, Honda declined 4.1% and Canon Inc. fell 4.3%.

Automakers also fell after CLSA Pacific Markets cut its rating on carmakers.