This past Friday, facing collapse, the firm received a temporary reprieve when JPMorgan and the Federal Reserve quickly moved in to provide Bear with emergency funding. Bear's shares immediately fell 53 percent on the news, and the firm said that its financial situation had “significantly deteriorated” after falling prey to a cash shortage brought on by the credit crisis. There were rumors of a sale, but most insiders didn't predict that within two days, it would all be over.
Fearing Bear’s cash shortage, the firm’s clients withdrew approximately $17 billion within 48 hours, leaving Bear with two choices: bankruptcy or a sale. Bear chose sale, and, according to The New York Times, "With the Fed and Treasury Department patched in by conference call from Washington, Bear Stearns executives held the equivalent of a speed-dating auction, with prospective bidders holed up in a half dozen conference rooms at its Madison Avenue headquarters."
Last night an agreement was reached. JPMorgan emerged as the bidding-war winner, while the Federal Reserve agreed to help JPMorgan finance the deal, providing them with a $30 billion credit line, which The Wall Street Journal said is “believed to be the largest Fed advance on record to a single company.”
Aftershocks of the buyout news were felt all around the world. In Japan, stocks immediately sunk to the lowest they’d been in two years. Analysts in the U.K. predicted an economic depression on the scale of the Great one of the 1930s. Swiss-based UBS announced it would likely cut another 8,000 jobs. And in the U.S., financial stocks plummeted during the first few hours of trading today, though they have regained some ground since.
Arguably the worst piece of bad news to hit Wall Street in recent months, last night it was announced that the 85-year-old investment banking mainstay Bear Stearns would be no more, as JPMorgan, with more than a little help from the Federal Reserve, agreed to save Bear from certain collapse, acquiring the firm for a measly $2 a share. The $236 million purchase price was 97 percent less than Bear's market value last week. One year ago, Bear traded at more than $150 per share. Indeed, what a difference a year makes. Or a weekend, for that matter.