JP Morgan Bailout Bear Stearns Cash Position.
Global Market
Federal Reserve is being forced to throw out four decades of monetary history by a financial system choking on miscalculated risks and a deepening recession.
The Fed voted to become creditors to Bear Stearns Cos. by invoking a law that hasn't been used since the 1960s. Three days earlier, the Fed said it would swap Treasury notes on its balance sheet for privately issued mortgage-backed securities held by Wall Street firms.
The cost of doing nothing may have been even greater. Fed is attempting to keep the nation's financial machinery working and trying to contend a worsening economic slump: Reports this week showed that retail sales fell and consumer confidence slid.
Even with the bailout, stocks retreated. The Standard & Poor's 500 Index fell to 1,288.14. The S&P Financials Index lost 4.1 percent. Bear Stearns tumbled $27 to $30. Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also declined.
Senior bank supervisors from the U.S., U.K., France, Germany and Switzerland blamed the crisis on poor communication, bad risk analysis and an under-estimation of liquidity needs by large financial institutions.
Panic selling is lowering the value of stocks and bonds, spurring more selling. Unemployment is rising, reducing incomes and spending, and falling asset prices are leading to a contraction in credit.
Fed officials meet to set interest rates on March 18. Futures traders put the chances of a 1 percentage point cut at 50 percent.
Bear Stearns Cos.'s 85 years as an independent Wall Street firm may be coming to an end as JPMorgan Chase & Co. considers buying the crippled company. They got emergency funding from the Federal Reserve and JPMorgan in the largest government bailout of a U.S. securities firm. The move failed to avert a crisis of confidence among Bear Stearns's customers and shareholders, who drove the stock down a record 47 percent.
After denying earlier this week that access to capital was at risk, Bear Stearns said yesterday the company's cash position had significantly deteriorated in the past 24 hours. The Fed agreed to provide financing through JPMorgan for up to 28 days.
Now JPMorgan is considering buying Bear Stearns. The bank may interested in buying Bear Stearns's prime brokerage unit. But no agreement has been reached and it's possible no deal will be completed
The Fed acted to prevent the failure of U.S. mortgage bonds and forestall a potential market panic as losses by banks and brokers and stocks plunged. Last month the U.K. government nationalized mortgage-lender Northern Rock after the Bank of England bailed it out in September.
Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also led declines the Standard & Poor's 500 Index fell yesterday. Lehman said it obtained a $2 billion, three-year credit line from 40 banks.
Bear Stearns's long-term counterparty credit rating was reduced three levels to BBB by Standard & Poor's, but the rating may be cut further.
Bear Stearns helped trigger a crash in the market for home loans to borrowers with blemished credit histories after two of its hedge funds collapsed in July. The failure of the two funds prompted a sell-off of the assets, which in turn led investors to shun other high-yield debt.
Its bailout is part of the wider, spreading freeze in credit markets. The difference between what the U.S. government and companies pay for three-month loans has also climbed in the past month.
Bear Stearns led Wall Street shares lower this year as they wrote down assets linked to the subprime mortgage market.
JPMorgan has posted $3.7 billion in writedowns, a fraction of the $22.4 billion reported by Citigroup.
About a sixth of the firm's income came from packaging and trading mortgage bonds, a market that has been almost completely frozen since July.
Bear Stearns employs 14,000 people worldwide and has offices in cities including London, Tokyo, Hong Kong, Beijing, Shanghai, Singapore, Milan and Sao Paulo.
The Fed is taking on the credit risk from collateral supplied by Bear Stearns, which approached the central bank for emergency funds, Fed staff officials said yesterday.
The Fed voted to lend the funds through JPMorgan because it would be operationally simpler than a direct loan to Bear Stearns. The regulator invoked a little-used law that allows it to make loans to corporations and private partnerships.
The Fed said it was monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system.
The Fed declined to describe the loan to Bear Stearns and declined to say whether a private- sector bailout was attempted before the Fed extended credit through JPMorgan.
JPMorgan's participation in the bailout follows a long tradition at the bank of stepping in to rescue financial markets from crisis.
The bank has also profited from others' crises. JPMorgan got at least $725 million of revenue for taking on half the energy trades from collapsed hedge fund Amaranth Advisors LLC in 2006.
Stock Market
The Standard & Poor's 500 Index fell after a cash crisis at Bear Stearns Cos. overshadowed the U.S. stock market's. Bear Stearns tumbled 57 percent after the Federal Reserve Bank of New York and JPMorgan Chase & Co. yesterday gave a 28-day lifeline. Financial shares in the S&P 500 fell 1.9 percent.
The S&P 500 retreated 0.4 percent to 1,288.14 for the entire week.
The Dow Jones Industrial Average gained 0.5 percent to 11,951.09 led by Caterpillar Inc., which boosted its sales forecast for 2010. The Russell 2000 Index rose 0.4 percent to 662.90.
Bear Stearns yesterday fell 47 percent. That was the company's biggest one-day loss ever. Trading volume of 187 million shares yesterday was 14 times the three-month daily average. Ambac Financial Group Inc. fell 35 percent to $6.22. Lehman Brothers Holdings Inc. slumped 15 percent to $39.26.
The Chicago Board Options Exchange Volatility Index added 13 percent to a five- year high of 31.16. Options traders increased bets that Bear Stearns will collapse. That's a level Ambac and Thornburg Mortgage Inc. reached this year as investors sold stock on concern the companies may fail.
Four of the five biggest securities firms by market value report first-quarter results next week. Bear Stearns yesterday moved up its announcement to March 17. Lehman and Goldman Sachs Group Inc. report March 18, while Morgan Stanley reports March 19.
Treasury yields and the dollar tumbled as traders priced in higher odds that the Fed will lower the benchmark interest rate by a full percentage point to 2 percent.
The two-year note's yield closed below 1.50 percent, and the 10-year note's yield fell to 3.44 percent.
The central bank sparked a 7.4 percent rally in S&P 500 financial shares with its plan to lend Treasury securities to financial institutions in exchange for mortgage- backed bonds. The Fed coordinated the effort with central banks in Europe and Canada. It was the latest in a series of measures designed to spur trading of debt securities other than Treasuries.
Humana Inc. and Wellpoint Inc. led the Health Care Providers & Services Index to a 13 percent plunge.
Humana fell 31 percent to $43.98. Wellpoint retreated 30 percent to $47.09.
Newmont Mining Corp. gained 8.2 percent to $53.63.
The dollar index sank against the euro and the yen. Gold exceeded $1,000 an ounce for the first time. Crude oil rose to a record $111 a barrel.
Currencies
The dollar sank below 99 yen and slumped to a record low versus the euro after JPMorgan Chase & Co. and the New York Federal Reserve bailed out Bear Stearns Cos., as credit market losses widen.
The U.S. currency yesterday also plunged to below one Swiss franc as traders speculated the Fed will slash interest rates one percentage point next week to avert a recession. The dollar set record lows against the euro as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to $1,009 an ounce.
The dollar sank to 98.90 yen yesterday and ended the week at 99.09. The U.S. currency fell to $1.5674 per euro after touching $1.5688 yesterday.
The currency fell to an all-time low of 0.9988 francs yesterday. The Dollar Index fell to 71.58 yesterday.
The New York Fed agreed to provide financing through JPMorgan for up to 28 days. Bear Stearns said in a separate statement that the firm's liquidity position had significantly deteriorated.
The yen and franc gained against major counterparts this week, rising more than 4 percent against Brazil's real, as losses in credit markets and stocks led traders to exit so-called carry trades.
Commodities
Oil
Crude oil in New York retreated from a record, amid signs that the Federal Reserve will reduce interest rates next week to spur economic growth.
U.S. interest-rate cuts along with steady rates in Europe have driven up the euro against the dollar. The falling dollar has spurred a rally in commodities.
Crude oil for April delivery fell 12 cents to settle at $110.21 a barrel. Futures prices rose to $111 a barrel yesterday.
Brent crude for April settlement rose 1 cent to $107.55 a barrel. Futures touched an intraday high of $108.02 a barrel today.
Commodities may have explosive rallies in the next couple of years, with crude oil rising to $175 a barrel. Political decisions on money flows, labor and technology are substantially constraining supply growth of commodities.
Gold
Gold surged to a record $1,009 an ounce as the Bear Stearns Cos. bailout and a plunging dollar increased demand for the precious metal. Silver also gained. Bear Stearns got emergency funding from JPMorgan Chase & Co. and the New York Federal Reserve.
Gold futures for April delivery rose $5.70 to $999.50 an ounce.
Silver futures for May delivery climbed 23.5 cents to $20.655 an ounce.
The worst housing slump in 25 years and more than $181 billion in bank losses and writedowns have forced the Federal Reserve to cut interest rates five times in six months. The federal-funds rate is at 3 percent, down from 5.25 percent in mid-September.
The Fed earlier this week said it would lend banks $200 billion in exchange for mortgage-backed debt.
The metal pared gains as the dollar reduced losses against the euro, which earlier climbed to a record $1.5688.
Gold has rallied for seven straight years, rebounding from a 20-year low of $253.20 on July 20, 1999, as mine supply has remained low and investment demand soared.
The StreetTracks Gold Trust, the biggest exchange-traded fund backed by bullion, reached a record 655 metric tons of gold reserves.
Compared with government holdings, their reserve would rank eighth behind Japan. The U.S. is the biggest holder with 8,133 metric tons, or 78 percent of its currency reserves, in gold.
World gold-mine production declined 1.4 percent last year to 2,444 metric tons, an 11-year low. Power disruptions in South Africa may continue to support bullion prices.
Still, high prices may discourage purchases by jewelers. Jewelry demand dropped 17 percent in the fourth quarter following a 15 percent gain in prices in the previous three months. About 68 percent of gold demand last year came from jewelers.
Imports by India plunged 81 percent to 10.2 metric tons in February from a year earlier.
UBS AG said that gold would rise to $1,025 in a month and $1,075 in three months.
Federal Reserve is being forced to throw out four decades of monetary history by a financial system choking on miscalculated risks and a deepening recession.
The Fed voted to become creditors to Bear Stearns Cos. by invoking a law that hasn't been used since the 1960s. Three days earlier, the Fed said it would swap Treasury notes on its balance sheet for privately issued mortgage-backed securities held by Wall Street firms.
The cost of doing nothing may have been even greater. Fed is attempting to keep the nation's financial machinery working and trying to contend a worsening economic slump: Reports this week showed that retail sales fell and consumer confidence slid.
Even with the bailout, stocks retreated. The Standard & Poor's 500 Index fell to 1,288.14. The S&P Financials Index lost 4.1 percent. Bear Stearns tumbled $27 to $30. Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also declined.
Senior bank supervisors from the U.S., U.K., France, Germany and Switzerland blamed the crisis on poor communication, bad risk analysis and an under-estimation of liquidity needs by large financial institutions.
Panic selling is lowering the value of stocks and bonds, spurring more selling. Unemployment is rising, reducing incomes and spending, and falling asset prices are leading to a contraction in credit.
Fed officials meet to set interest rates on March 18. Futures traders put the chances of a 1 percentage point cut at 50 percent.
Bear Stearns Cos.'s 85 years as an independent Wall Street firm may be coming to an end as JPMorgan Chase & Co. considers buying the crippled company. They got emergency funding from the Federal Reserve and JPMorgan in the largest government bailout of a U.S. securities firm. The move failed to avert a crisis of confidence among Bear Stearns's customers and shareholders, who drove the stock down a record 47 percent.
After denying earlier this week that access to capital was at risk, Bear Stearns said yesterday the company's cash position had significantly deteriorated in the past 24 hours. The Fed agreed to provide financing through JPMorgan for up to 28 days.
Now JPMorgan is considering buying Bear Stearns. The bank may interested in buying Bear Stearns's prime brokerage unit. But no agreement has been reached and it's possible no deal will be completed
The Fed acted to prevent the failure of U.S. mortgage bonds and forestall a potential market panic as losses by banks and brokers and stocks plunged. Last month the U.K. government nationalized mortgage-lender Northern Rock after the Bank of England bailed it out in September.
Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also led declines the Standard & Poor's 500 Index fell yesterday. Lehman said it obtained a $2 billion, three-year credit line from 40 banks.
Bear Stearns's long-term counterparty credit rating was reduced three levels to BBB by Standard & Poor's, but the rating may be cut further.
Bear Stearns helped trigger a crash in the market for home loans to borrowers with blemished credit histories after two of its hedge funds collapsed in July. The failure of the two funds prompted a sell-off of the assets, which in turn led investors to shun other high-yield debt.
Its bailout is part of the wider, spreading freeze in credit markets. The difference between what the U.S. government and companies pay for three-month loans has also climbed in the past month.
Bear Stearns led Wall Street shares lower this year as they wrote down assets linked to the subprime mortgage market.
JPMorgan has posted $3.7 billion in writedowns, a fraction of the $22.4 billion reported by Citigroup.
About a sixth of the firm's income came from packaging and trading mortgage bonds, a market that has been almost completely frozen since July.
Bear Stearns employs 14,000 people worldwide and has offices in cities including London, Tokyo, Hong Kong, Beijing, Shanghai, Singapore, Milan and Sao Paulo.
The Fed is taking on the credit risk from collateral supplied by Bear Stearns, which approached the central bank for emergency funds, Fed staff officials said yesterday.
The Fed voted to lend the funds through JPMorgan because it would be operationally simpler than a direct loan to Bear Stearns. The regulator invoked a little-used law that allows it to make loans to corporations and private partnerships.
The Fed said it was monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system.
The Fed declined to describe the loan to Bear Stearns and declined to say whether a private- sector bailout was attempted before the Fed extended credit through JPMorgan.
JPMorgan's participation in the bailout follows a long tradition at the bank of stepping in to rescue financial markets from crisis.
The bank has also profited from others' crises. JPMorgan got at least $725 million of revenue for taking on half the energy trades from collapsed hedge fund Amaranth Advisors LLC in 2006.
Stock Market
The Standard & Poor's 500 Index fell after a cash crisis at Bear Stearns Cos. overshadowed the U.S. stock market's. Bear Stearns tumbled 57 percent after the Federal Reserve Bank of New York and JPMorgan Chase & Co. yesterday gave a 28-day lifeline. Financial shares in the S&P 500 fell 1.9 percent.
The S&P 500 retreated 0.4 percent to 1,288.14 for the entire week.
The Dow Jones Industrial Average gained 0.5 percent to 11,951.09 led by Caterpillar Inc., which boosted its sales forecast for 2010. The Russell 2000 Index rose 0.4 percent to 662.90.
Bear Stearns yesterday fell 47 percent. That was the company's biggest one-day loss ever. Trading volume of 187 million shares yesterday was 14 times the three-month daily average. Ambac Financial Group Inc. fell 35 percent to $6.22. Lehman Brothers Holdings Inc. slumped 15 percent to $39.26.
The Chicago Board Options Exchange Volatility Index added 13 percent to a five- year high of 31.16. Options traders increased bets that Bear Stearns will collapse. That's a level Ambac and Thornburg Mortgage Inc. reached this year as investors sold stock on concern the companies may fail.
Four of the five biggest securities firms by market value report first-quarter results next week. Bear Stearns yesterday moved up its announcement to March 17. Lehman and Goldman Sachs Group Inc. report March 18, while Morgan Stanley reports March 19.
Treasury yields and the dollar tumbled as traders priced in higher odds that the Fed will lower the benchmark interest rate by a full percentage point to 2 percent.
The two-year note's yield closed below 1.50 percent, and the 10-year note's yield fell to 3.44 percent.
The central bank sparked a 7.4 percent rally in S&P 500 financial shares with its plan to lend Treasury securities to financial institutions in exchange for mortgage- backed bonds. The Fed coordinated the effort with central banks in Europe and Canada. It was the latest in a series of measures designed to spur trading of debt securities other than Treasuries.
Humana Inc. and Wellpoint Inc. led the Health Care Providers & Services Index to a 13 percent plunge.
Humana fell 31 percent to $43.98. Wellpoint retreated 30 percent to $47.09.
Newmont Mining Corp. gained 8.2 percent to $53.63.
The dollar index sank against the euro and the yen. Gold exceeded $1,000 an ounce for the first time. Crude oil rose to a record $111 a barrel.
Currencies
The dollar sank below 99 yen and slumped to a record low versus the euro after JPMorgan Chase & Co. and the New York Federal Reserve bailed out Bear Stearns Cos., as credit market losses widen.
The U.S. currency yesterday also plunged to below one Swiss franc as traders speculated the Fed will slash interest rates one percentage point next week to avert a recession. The dollar set record lows against the euro as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to $1,009 an ounce.
The dollar sank to 98.90 yen yesterday and ended the week at 99.09. The U.S. currency fell to $1.5674 per euro after touching $1.5688 yesterday.
The currency fell to an all-time low of 0.9988 francs yesterday. The Dollar Index fell to 71.58 yesterday.
The New York Fed agreed to provide financing through JPMorgan for up to 28 days. Bear Stearns said in a separate statement that the firm's liquidity position had significantly deteriorated.
The yen and franc gained against major counterparts this week, rising more than 4 percent against Brazil's real, as losses in credit markets and stocks led traders to exit so-called carry trades.
Commodities
Oil
Crude oil in New York retreated from a record, amid signs that the Federal Reserve will reduce interest rates next week to spur economic growth.
U.S. interest-rate cuts along with steady rates in Europe have driven up the euro against the dollar. The falling dollar has spurred a rally in commodities.
Crude oil for April delivery fell 12 cents to settle at $110.21 a barrel. Futures prices rose to $111 a barrel yesterday.
Brent crude for April settlement rose 1 cent to $107.55 a barrel. Futures touched an intraday high of $108.02 a barrel today.
Commodities may have explosive rallies in the next couple of years, with crude oil rising to $175 a barrel. Political decisions on money flows, labor and technology are substantially constraining supply growth of commodities.
Gold
Gold surged to a record $1,009 an ounce as the Bear Stearns Cos. bailout and a plunging dollar increased demand for the precious metal. Silver also gained. Bear Stearns got emergency funding from JPMorgan Chase & Co. and the New York Federal Reserve.
Gold futures for April delivery rose $5.70 to $999.50 an ounce.
Silver futures for May delivery climbed 23.5 cents to $20.655 an ounce.
The worst housing slump in 25 years and more than $181 billion in bank losses and writedowns have forced the Federal Reserve to cut interest rates five times in six months. The federal-funds rate is at 3 percent, down from 5.25 percent in mid-September.
The Fed earlier this week said it would lend banks $200 billion in exchange for mortgage-backed debt.
The metal pared gains as the dollar reduced losses against the euro, which earlier climbed to a record $1.5688.
Gold has rallied for seven straight years, rebounding from a 20-year low of $253.20 on July 20, 1999, as mine supply has remained low and investment demand soared.
The StreetTracks Gold Trust, the biggest exchange-traded fund backed by bullion, reached a record 655 metric tons of gold reserves.
Compared with government holdings, their reserve would rank eighth behind Japan. The U.S. is the biggest holder with 8,133 metric tons, or 78 percent of its currency reserves, in gold.
World gold-mine production declined 1.4 percent last year to 2,444 metric tons, an 11-year low. Power disruptions in South Africa may continue to support bullion prices.
Still, high prices may discourage purchases by jewelers. Jewelry demand dropped 17 percent in the fourth quarter following a 15 percent gain in prices in the previous three months. About 68 percent of gold demand last year came from jewelers.
Imports by India plunged 81 percent to 10.2 metric tons in February from a year earlier.
UBS AG said that gold would rise to $1,025 in a month and $1,075 in three months.
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