Stocks Waver in Aftermath of Bear Deal
NEW YORK — Wall Street clawed back from sharp losses Monday, with investors snapping up bargain stocks after JPMorgan Chase & Co. bought stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated in and out of positive territory.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it.
Moves by the Federal Reserve also seemed to give the market a floor Monday. Besides supporting the buyout, the Fed took the extraordinary step of lowering the rate it charges to loan directly to banks on Sunday night _ two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 percent.
And in another unusual move, the Fed said it set up a lending option for big investment banks to secure short-term loans.
The Fed's recent actions were seen as a pledge that the central bank would do everything in its power to keep the credit crisis from destroying the financial industry and the economy, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.
Still, the market remained extremely volatile, and a steeper drop Monday was still quite possible. The sale of Bear Stearns _ and the fact that JPMorgan is valuing the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million _ stirred fear among investors worldwide about other banks' exposure to the troubled credit markets.
"Our economy needs to substantially delever. You're going to have some very weak players pushed out of business," Battipaglia added, saying JPMorgan's buy of Bear Stearns and Bank of America Corp.'s acquisition of mortgage lender Countrywide are probably not the only rescues the industry will witness during this credit crisis.
The Dow recovered to trade down 15.88, or 0.13 percent, to 11,935.21.
Broader indexes also made up some lost ground. The Standard & Poor's 500 index fell 9.29, or 0.72 percent, to 1,278.85, while the Nasdaq composite index fell 22.85, or 1.03 percent, to 2,189.64.
JPMorgan is one of the Dow components, and rose $3.92, about 10 percent, to $40.46. The Fed essentially guaranteed JPMorgan that it would backstop the risk in taking over the 85-year-old Bear Stearns, which has 14,000 employees worldwide.
Bear Stearns shares fell 86 percent to $4.20 _ still above the buyout price, implying that some shareholders believe the deal terms might change.
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.37 percent from 3.44 percent late Friday.
The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.
Light, sweet crude dropped $1.89 to $108.33 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.
Overseas, Japan's Nikkei stock average fell 3.71 percent, while Hong Kong's Hang Seng index fell 5.18 percent. In afternoon trading, Britain's FTSE 100 fell 2.32 percent, Germany's DAX index dropped 3.29 percent, and France's CAC-40 lost 2.52 percent.
The pain for investors in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank's worth little more than two weeks ago. Bear Stearns' buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.
The market's concern wasn't limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.
Lehman fell $7.28, or 18.5 percent, to $31.98.
Wall Street's worries about the financial sector come in a week in which the major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.
While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country's factories, mines and utilities fell by one-half percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.
The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.
Also, the New York Fed's Empire State Manufacturing Survey indicated that conditions for New York manufacturers deteriorated further in March.
___
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Loading comments…
MADLEN READ | March 17, 2008 11:02 AM EST |
Compare other versions »Compare and versions