News of a surprise quarter per cent cut in the US Federal Reserve’s discount lending rate – the rate at which it lends money to banks – also failed to lift the gloomy mood.
JPMorgan’s deal to buy Bear Stearns, announced late on Sunday in the US, values Wall Street’s fifth-largest investment bank at about $236m.
JPMorgan is buying the troubled bank for just $2 with the US Federal Reserve, which has already approved the deal, providing special funding.
Before it faced speculation about liquidity problems, triggering a run on the bank last week, Bear Stearns’ stock had been trading at around $70 a share, plunging to $30 on Friday.
JPMorgan said on Sunday the deal had been approved by the board of directors of both banks.
It said the Federal Reserve had agreed to fund up to $30bn of Bear Stearns’ less liquid assets in a bid to help prop up the deal.
|Asian investors remain worried over
a possible US recession [Reuters]
The assistance from the Fed is extremely rare and underlines the severity of the financial turmoil rocking Wall Street and some of the largest US banks.
Bear Sterns is the latest bank to be hit by the global credit crunch, rattling investor nerves and fuelling worries that other lenders may face problems.
The credit crunch was triggered by large losses by suffered by banks on investments linked to the US house market, which made banks less willing to lend money to each other.
Most of the housing losses were linked to the so-called sub-prime sector, meaning loans to customers with poor or non-existent credit histories.
A record number of these borrowers have defaulted on loans, sparking a sudden freezing of the credit markets and causing problems for a string of financial institutions which had relied on cheap credit to fund their business.
Monday morning’s sell-off in Toyo hit stocks in Japanese exporters such as motor giant Toyota particularly hard as the US dollar continued to slide, hitting a 12-and-a-half year low against the yen.
A strong yen makes Japanese exports less competitive in the US market at a time when fears are growing that the US economy is teetering on the brink of recession.