Bear Stearns Stockholders Socked

The news wasn't surprising but the price tag was a real stunner.

On Sunday J.P. Morgan chase agreed to pay $2 per share to acquire failing Wall Street investment bank Bear Stearns, lock, stock, and barrel. And the purchase price, by the way, will be paid entirely in stock and includes purchase of the company's 45 story New York office tower.

Starting on Thursday Bear Stearns began to suffer what was really an old fashioned run on the bank. Monies held by investment banks have no federal insurance such as that obtained by commercial and retail banks through the FDIC. Bear Stearns, which wrote off $1.9 billion in losses last quarter largely due to its investments in the subprime market announced Friday morning that its financial condition had deteriorated significantly overnight and cast doubt on its own survival. It then arranged to access the Federal Reserve's emergency finance facility, known as the discount window, with the assistance of J.P. Morgan because, again, investment banks do not have such federal assistance. The emergency funds were lent for a period of 28 days and secured by collateral but Bear Stearns recourse to such measures led to wide-spread speculation that the huge bank's days were numbered.

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