Bear Stearns Cos' 85 years as an independent Wall Street firm may be coming to an end as JPMorgan Chase & Co considers buying the crippled company.
Teetering on the brink of collapse from a lack of cash, Bear Stearns got emergency funding on Friday from the US Federal Reserve and JPMorgan in the largest government bailout of a US securities firm. The move failed to avert a crisis of confidence among Bear Stearns' customers and shareholders, who drove the stock down a record 47 percent.
After denying earlier this week that access to capital was at risk, Bear Stearns chief executive officer (CEO) Alan Schwartz said on Friday that the company's cash position had "significantly deteriorated" in the past 24 hours. The Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement on Friday.
Now JPMorgan, led by CEO Jamie Dimon, is considering buying Bear Stearns, three people briefed on the matter said. No agreement has been reached and it's possible no deal will be completed, said the sources, who declined be identified because the discussions were confidential.
A person close to JPMorgan said the bank might also be interested in buying Bear Stearns' prime brokerage unit, which provides loans and processes trades for hedge funds.
Dimon, whose firm has suffered fewer losses than rivals during the credit-market contraction, has said that he would be open to making an acquisition.
The bank has "plenty of capital," he told the audience at a dinner hosted by the Economic Club of Washington last week.
Other potential Bear Stearns buyers include private equity firms such as J.C. Flowers & Co, the Wall Street Journal reported.
HSBC Holdings Plc, Europe's largest bank by market value, also has the resources to make an acquisition.
Bear Stearns, founded in 1923, acted in response to "market rumors" of a liquidity crisis, Schwartz, 57, said in a separate statement.
He said earlier this week that the company's "liquidity cushion" was sufficient to weather the credit-market contraction. Traders have been reluctant to engage in long-term transactions with Bear Stearns as a counterparty, the Wall Street Journal reported on Wednesday.
"We have tried to confront and dispel these rumors and parse fact from fiction," Schwartz, who was named CEO less than three months ago, said in the New York-based company's statement on Friday. "Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."
The announcement caused financial shares to plunge, with Bear Stearns tumbling US$27 to close at US$30 in New York Stock Exchange composite trading.
The stock has lost 66 percent of its value this year. The sinking share price has wiped out US$10.5 billion in shareholder value in the last three months.
Bear Stearns' long-term counterparty credit rating was reduced three levels to BBB by Standard & Poor's.
The rating may be cut further, New York-based S&P said. It lowered the short-term rating to A3 from A1.
Bear Stearns helped trigger a crash in the market for home loans after two of its hedge funds collapsed last July.
During a conference call with analysts and investors after Friday's announcement, Schwartz said that the company's book value was "fundamentally" unchanged.
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