US stocks fall sharply as markets open
By Madlen Read, AP
Monday, 17 March 2008
Wall Street tumbled in early trading Monday as Wall Street and other global markets reeled from JPMorgan Chase & Co.'s government-backed buyout of the invalid investment bank Bear Stearns Cos. The Dow Jones industrials fell about 150 points in the first few minutes of trading.
On top of supporting the buyout, the Federal Reserve took the extraordinary step of lowering the rate it charges to loan directly to banks on Sunday night — two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 per cent.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. But Bear Stearns' implosion — and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a paltry $2 a share, or $236.2 million (¤151.79 million) — stirred fear among investors worldwide that other banks had sizable exposure to troubled credit markets.
"That is just unbelievable," said investing consultant Scott Fullman. Bear Stearns stock closed at $30 a share on Friday. "It implies there is more risk in here than has been apparent."
Stocks also fell sharply in Asia and Europe.
The Dow Jones industrial average fell 149.72, or 1.25 per cent, to 11,801.37.
Broader indexes also tumbled. Standard & Poor's 500 index futures fell 21.19, or 1.65 percent, to 1,266.95, while the Nasdaq composite index fell 39.46, or 1.78 percent, to 2,173.03.
http://money.aol.com/news/articles/_a/global-markets-tumble-on-bear-deal/20080316212509990001?ncid=NWS00010000000001
Global Markets Tumble on Bear Deal
By MADLEN READ,
AP
Posted: 2008-03-17 09:48:42
NEW YORK (March 17) - Wall Street tumbled in early trading Monday as Wall Street and other global markets reeled from JPMorgan Chase & Co.'s government-backed buyout of the invalid investment bank Bear Stearns Cos. The Dow Jones industrials fell about 150 points in the first few minutes of trading.
On top of supporting the buyout, the Federal Reserve took the extraordinary step of lowering the rate it charges to loan directly to banks on Sunday night - two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 percent.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. But Bear Stearns' implosion - and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a paltry $2 a share, or $236.2 million - stirred fear among investors worldwide that other banks had sizable exposure to troubled credit markets.
"That is just unbelievable," said investing consultant Scott Fullman. Bear Stearns stock closed at $30 a share on Friday. "It implies there is more risk in here than has been apparent."
http://www.timesonline.co.uk/tol/news/
From Times Online
March 17, 2008
Wall Street dives as markets look to next victim
Dearbail Jordan, Leo Lewis, Patrick Foster and Catherine Boyle
American shares plunged nearly 200 points in early trading today as investors offloaded stock after the Federal Reserve's surprise rate cut and fears grew another bank could hit the skids following Bear Stearn's emergency takeover by JP Morgan Chase.
The Dow Jones industrial average lost 190 points to 11,7611 within minutes of opening as shareholders took action following the Fed's 0.25 per cent reduction to borrowing costs, and is expected to cut the rate again tomorrow.
US President, George W. Bush, attempted to reassure the shaken markets after meeting with Henry Paulson, the US Treasury Secretary, and Ben Bernanke, chairman of the US Fed.
President Bush said he backed the decision to bail-out Bear Stearns, adding that “in the long run,” the US economy “is going to be fine” and that “the US is on top of the situation".
He said: “Our financial institutions are strong and our capital markets are functioning efficiently and effectively.” President Bush said the US Government will continue to monitor the situation closely.
In London, the FTSE 100 index of leading shares fell 156.3 points to 5,474 as the US market plunged.
JP Morgan initially pumped money into Bear Stearns before buying it outright for just $240 million, after investors made a run on Wall Street fifth largest bank.
There are now concerns another bank could be vulnerable to a rush of investors seeking to withdrew all their funds, thereby putting the stability of the US economy at further risk.
Traders said that the market’s biggest fear now is that Lehman Brothers could be the next in line for a calamity, and that the New York Federal Reserve is fast running out of ammunition with which to fight the crisis.
In London, the Bank of England was deluged with demands by British banks to borrow £23.6 billion - nearly five times more than the UK central bank had put up for auction as lenders clambered to prop up their capital amid plunging global stock markets.
The Bank offered £5 billion to British banks over a three-day period to help increase the flow of money between lenders.
However, orders to borrow money reached £23.6 billion after banks took fright at the US Federal Reserve's sudden interest rate cut and JP Morgan Chase's takeover of Bear Stearns.
The Bank of England said the action is being taken in response to conditions in the short-term money markets this morning and it is closely monitoring market conditions along with other central banks.
The London interbank offered rate (Libor), which is the cost banks charge to lend to each other, rose from 5.93 per cent to 5.96 per cent for three-month borrowing. For one-month lending, the rate rose from 5.70 to 5.72 per cent.
On the London stock market, banks were the biggest fallers with a total £10 billion wiped off companies' market values.
HBOS plunged more than 11 per cent, Royal Bank of Scotland was off 7 per cent, Alliance &Leicester dropped 6 per cent and Barclays declined 5 per cent.
The sharp drop in London shares followed falls across Asia. Currency, stock and bond market chaos saw repeated waves of panic-trading in Tokyo.
The yen hit a 12-year high against the dollar as Tokyo share prices tumbled to a 31-month low this morning.
The Bank of Japan injected $4.1 billion (£2 billion) into Japan’s money market as an emergency measure to bring down interest rates amid worries about global credit problems.
Japan’s central bank said it had not acted in conjunction with the US Federal Reserve. The European Central Bank declined to comment on speculation that its governing council will hold various emergency meetings today.
Commodities rose sharply as investors sought refuge from the region's volatile equity markets.
Gold for immediate delivery soared 3 per cent to a record $1,032 an ounce and oil reached $111.80 a barrel.
The Japanese Government, which has a long reputation for currency intervention, issued its sternest warning yet to the markets, with the Minister of Finance declaring that the day’s moves had been “excessive”.
Tokyo stocks, many of which are large exporters and dangerously exposed to the strength of the yen, took a 3 per cent dive that was only rescued from a worse collapse by anaemic buying of the banking sector late in the session.
Markets across the Asia-Pacific region dropped, with India's Sensex index falling 3.8 per cent in morning trading.
In Hong Kong, the Hang Seng index was down 4.3 per cent, to its lowest level in seven months.
Shanghai’s composite index fell 3.6 per cent, South Korea’s KOSPI index finished down 1.6 per cent, Singapore’s Straits Times index was last down 1.4 per cent and Taiwan’s benchmark index closed at 1.9 per cent down.
In Australia the S&P/ASX 200 index fell 2.3 per cent to its lowest level in 18 months.
Fanning the flames of despair was a bizarre twist in the succession troubles at the Bank of Japan – a political showdown which, at the height of what some believe could become the worst global financial crisis since the Second World War, could leave Japan’s central bank without a leader in 48 hours.
With its own choice of next governor rejected by MPs last week, there was growing anticipation at the weekend that the ruling block would announce an alternative candidate acceptable to both sides of parliament.
It turned out, however, that the “alternative” proposal issued on Monday morning was merely that the current governor, Toshihiko Fukui, should remain in place for another five-year term. It was instantly rejected by the opposition leadership, leaving the Tuesday night deadline in increasing jeopardy.
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