NEW YORK (AP) - Bear Stearns and JPMorgan Chase & Co. were close to an
emergency buyout deal Sunday night aimed at averting further panic in the
financial markets.
Top executives from both companies were in 11th-hour talks about a deal that
could sell Bear Stearns for a per share price that is likely to be "considerably
less" than the $30 the stock closed at Friday, according to The Wall Street
Journal.
Bear Stearns shares closed down $27, or 47.4 percent, to $30 on Friday as
investors worried about a possible failure of the investment bank. The drop
wiped $5.7 billion from the company's market value. JPMorgan shares fell $1.57,
or 4.1 percent, to $36.54 on Friday.
Both sides were in a rush to complete a deal before financial markets opened
in Asia for Monday morning trading, amid fears that a crisis of confidence could
roil the system further, according to sources close to the talks who were not
authorized to comment on the record.
Ahead of Tokyo's open, concerns about the credit crisis taking a new, more
dangerous turn began to emerge in overseas markets. New Zealand shares opened
sharply lower in overnight trading, tracking financial sector-driven weakness on
Wall Street and signaling a potential sell-off in Asian markets.
Analysts on Wall Street say the bid to rescue Bear Stearns was more than
just saving the nation's fifth-largest investment bank. Instead, keeping Bear
Stearns afloat -- even if it is sold off -- was really propping up both the U.S.
economy and global financial system.
"This is going to go down in very historic terms," said Peter Dunay, chief
investment strategist for New York-based Meridian Equity Partners. "This is
about credit being overextended, and how bad it is for major financial
institutions and for individuals. This is why we're probably heading into a
recession."
The government, led by the Treasury Department and the Federal Reserve, was
reported to be closely monitoring the talks. Any deal to rescue Bear Stearns was
seen as a lifeline for the entire financial services industry, helping to stave
off further weakness on Wall Street.
Treasury Secretary Henry Paulson, former chief executive of Goldman Sachs
Group Inc., "has been in nearly continuous consultations all weekend," said
Brookly McLaughlin, a Treasury Department spokeswoman. She wouldn't comment on
the timing of any deal, other than to say "these things are never done until
they're done."
After days of denials that it had liquidity problems, Bear was forced into a
JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of
its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan
with the government's guarantee that JPMorgan would not suffer any losses on the
deal.
Among the Wall Street investment banks, Bear Stearns was the most closely
exposed to the mortgage crisis. The collapse of two of its hedge funds last
summer was seen by many as one of the triggers of the current credit crisis.
Management at Bear Stearns worked on Sunday to call clients in Asia who are
worried about their business relationship, according to a Bear Stearns employee
who was not authorized to speak. Many customers have pulled business from the
ailing investment bank since Thursday when rumors began to circulate that it was
close to failure.
Many of Bear Stearns' 14,000 employees were phoned Sunday and told to show
up to work at 7:30 a.m. EST, the person said.
The Journal also reported that if a deal with JPMorgan were to fall apart,
Bear could conceivably file for bankruptcy late Sunday before Asian financial
markets opened.
Calls to Bear Stearns and JPMorgan were not immediately returned. A
spokeswoman for Lazard Ltd., the investment bank representing Bear Stearns in
the talks, did not immediately return phone calls seeking comment.
This is not the first time Bear Stearns has earned a place in Wall Street
history.
A decade ago, Bear Stearns refused to help bail out a hedge fund that was
deemed "too big to fail," drawing the ire of its brethren on Wall Street. On
Friday, it found itself hat in hand, looking for the same kind of aid.
It was a stunning collapse for Bear Stearns, founded in 1923 and best known
in recent years for its success in the once-lucrative mortgage securities
market. Its aggressive position in mortgages was also its undoing.
In June, two Bear-managed hedge funds worth billions of dollars collapsed
and lost all their money. The funds were heavily invested in securities backed
by subprime mortgages -- loans given to customers with poor credit history.
Until that point, subprime mortgage-backed securities were immensely popular
with investors because of their profitability.
The funds' collapse and subsequent problems in the credit markets called
into question Bear Stearns ability to manage its own risk and the leadership
ability of then-Chief Executive James Cayne. Critics of the company said Cayne
spent too much time away from the office last year playing golf and bridge as
the problems unfolded.
Cayne is the same executive who refused to let Bear Stearns provide support
as part of a Federal Reserve Bank-led plan to rescue Long-Term Capital
Management in 1998. His reticence was said to deeply anger some of his fellow
Wall Street CEOs, and the episode came up every time Bear was reported to be in
trouble in recent months.
Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg
joined Bear Stearns as a clerk, working his way up through the ranks to
eventually take over as CEO in 1978. Greenberg was known for his irreverent
style, and his regular memos to employees were turned into a book called "Memos
from the Chairman."
Before Greenberg's ascendancy to CEO, Bear Stearns began to expand from its
New York roots throughout the 1950s and 1960s, opening international offices and
expanding its U.S. operations.
The company was opened in 1923 as an equity trading shop. Today, it has
subsidiaries providing a wide array of financial services products for
individuals, corporations, institutions and governments. Generally, it provides
capital markets, wealth management and global clearing services to its
customers.
--
AP Business Writers Jeannine Aversa in Washington and Stephen Bernard
contributed to this story.
Copyright 2007 Associated Press. All rights reserved. This material may not be
published, broadcast, rewritten, or redistributed.
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