Shares tumble in wake of Bear Stearns sale
Stock markets fell worldwide today, while oil soared and the dollar sank amid fears the credit crisis was about to worsen in the wake of troubled US investment bank Bear Stearns.
Oil prices reached a record high and the dollar a new low against the euro after JPMorgan said yesterday it would buy Bear Stearns for 236.2 million dollars – or 2 dollars a share – in stunning collapse for one of the world’s largest and most venerable investment banks.
The buyout was aimed at averting bankruptcy by Bear Stearns and a spreading crisis of confidence in the global financial system sparked by problems in the US subprime mortgage market.
The Bank of England said it would offer an extra £5 billion of reserves into the short-term money market because of conditions, and the Bank of Japan and the Royal Bank of Australia also made more funds available.
The FTSE 100 closed down 3.9% to 5414.4, while France’s CAC-40 Index dropped 3.5% to 4431.0. Germany’s DAX Index plunged 4.2% to 6182.3.
Financials were especially hard hit, with Switzerland’s UBS down 13.9% on the day.
Wall Street fell in turbulent trading after the US open. The Dow was down 162.66, or 1.36%, to 11,788.43, after venturing into positive territory. The Standard & Poor’s 500 index fell 29.40, or 2.28%, to 1,258.74, while the Nasdaq composite index fell 54.91, or 2.48%, to 2,157.58.
The head of the International Monetary Fund said the world financial crisis was more serious and more global than a few weeks ago. Dominique Strauss-Kahn said the “economic environment was still worsening.”
“Its difficult to call where the bottom is,” said Richard Hunter, a broker at Hargreaves Lansdown in London. “The banks getting hit are those perceived to have exposure to the US subprime market.”
News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading.
Japan’s benchmark 225 index sank 3.7% to close at 11,787.51 points, its lowest in more than 21/2 years. Hong Kong’s Hang Seng index fell 5.2% to finish at 21,084.61.
Across the Asia-Pacific region, all major stock indexes were down, including markets in Australia, China, South Korea, Indonesia and the Philippines.
In a rare weekend move, the Federal Reserve took bold action yesterday by cutting the discount rate, its lending rate to financial institutions, to 3.25% from 3.5%, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans that would be available to big Wall Street firms today.
The Fed was also widely expected to again cut its headline interest rate, the fed funds rate, by as much as a full percent to 2% at a regular meeting set for tomorrow.
In currency trading, the dollar plunged as low as 95.72 yen – its lowest since August 1995 – dragged down by a gloomy outlook for the American economy and prospects for lower interest rates.
Japanese officials quickly called for calm in the currency markets, but did not announce any plans for intervention to shore up the dollar by buying up supply. The weak dollar erodes profits at the country’s key exporters.
