Stocks plummeted today after Bear Stearns announced it reached an agreement with JPMorgan Chase to receive 28-day secured lending to address the firms liquidity crisis over exposure to subprime loans.
The Dow Jones industrial average closed below the 12,000 mark, down 194.65, or 1.6%, at 11,951.09; the S&P 500 fell 27.34, or 2.08%, ending at 1,288.14; and the Nasdaq composite closed down 51.12, or 2.26%, at 2,212.49. All numbers are preliminary.
The news of the bailout drove Bear Stearns stock down more than 50% in morning trading to $26.85 and was trading at $30.24, down 47%, just before the close this afternoon; the stock was $159.36 at its high April 25, 2007. The news also pressured the financial sector and the broad market amid renewed credit crunch fears.
The Federal Reserves board approved the arrangement announced by JPMorgan Chase and Bear Stearns. The SEC also announced today that SEC officials had been in close contact with the Federal Reserve, the Federal Reserve Bank of New York and the Department of Treasury during the discussions about the secured loan to Bear Stearns.
In a conference call to analysts, Alan Schwartz, Bear Stearns CEO, said the company started the week with very strong liquidity, but concerns on the part of counterparties, customers and lenders got to a point where a lot of people wanted to get cash out, he said.
Bear Stearns secured the deal with JPMorgan Chase so it could conduct business as usual while the company gets the facts about the firms financial stability to shareholders and customers, Mr. Schwartz said. Bear Stearns will move up its earnings call up to March 17, from March 20.