Confidence in Bear Stearns collapsed on Friday after the US investment bank said it had arranged for an unspecified amount of emergency funding from JP Morgan and the Federal Reserve Bank of New York because its liquidity position had “significantly deteriorated”.
In early New York trading, Bear Stearns shares plunged as much as 50 per cent, pulling the rest of the US stock market down. The shares have been hammered by concerns about the bank’s liquidity and had fallen more than 30 per cent this week alone in highly volatile trading.
In a statement, JP Morgan Chase said that “in conjunction with the Federal Reserve Bank of New York, it has agreed to provide secured funding to Bear Stearns, as necessary, for an initial period of up to 28 days.
”Through its discount window, the Fed will provide non-recourse, back-to-back financing to JPMorgan Chase. Accordingly, JPMorgan Chase does not believe this transaction exposes its shareholders to any material risk. JPMorgan Chase is working closely with Bear Stearns on securing permanent financing or other alternatives for the company.”