In what most observers regard as an unusual move, the US Federal Reserve and JPMorgan Chase have stepped in to provide emergency funding to Bear Stearns, Wall Street’s fifth largest investment bank.
Bear Stearns reached out to the Fed late Thursday evening to quell what many analysts are calling a run on the bank. On Friday, Bear Stearns stock lost nearly half its market value, about $5.7 billion, very quickly, as the market tumbled as well. Its stock stock plummeted 47 percent, or $27, to $30.
The organization says its liquidity crisis was brought on by the rumor mill. “Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations,” says Alan Schwartz, president and CEO, The Bear Stearns Companies Inc.
Since Bear Stearns announced on Friday that it was seeking emergency funding from the Fed and JPMorgan, its future has become even more muddled. The secured loan gives Bear Stearns 28 days to resolve its problems. Many analysts believe this resolution will come in the form of a sale, and the New York Times speculated a roster of buyers, including: JPMorgan, or even sovereign wealth funds.