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Bearsterns takeover causes economic tumble { March 17 2008 } Original Source Link: (May no longer be active)
http://ap.google.com/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD8VF4R600http://ap.google.com/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD8VF4R600
Asian Stocks Tumble on Bear Stearns News
By KELLY OLSEN
March 17, 2008
LONDON (AP) — Global markets plunged Monday on news that JPMorgan Chase, backed by the U.S. government, had to rescue troubled Bear Stearns, with investors struggling to gauge how much worse financial markets could get.
Oil prices hit a record in Asian trading, U.S. stock index futures fell sharply and the dollar hit record lows.
JPMorgan said Sunday it would buy Bear Stearns for $236.2 million — $2 a share — in a stunning collapse for one of the world's largest and most venerable investment banks done in by exposure to bad mortgages.
European stocks fell in morning trading. The U.K.'s benchmark FTSE 100 dipped 2.6 percent to 5,485.3 while France's CAC 40 slid 2.7 percent to 4,467.49. Germany's DAX slipped 3.8 percent.
"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.
"Just buying an investment bank does not solve the problem," he said. "Markets are prodding (the U.S. government) to inject public funds."
News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading.
Japan's benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. Hong Kong's Hang Seng index fell 5.2 percent to finish at 21,084.61.
Across the Asia-Pacific region, all major stock indexes were down, including markets in Australia, China, South Korea, Indonesia and the Philippines. India's Sensex dropped 5.1 percent in afternoon trading.
"We are worried" about what comes next, Shim Jae-youb, a strategist at Meritz Securities in Seoul, said of concerns that other banks may collapse.
Shim said investors were on guard ahead of the release of quarterly earnings reports from big U.S. investment banks this week, including Lehman Brothers Holdings Inc., Goldman Sachs Group Inc., and Morgan Stanley. Bear Stearns called off its report.
In an extraordinarily move, the Federal Reserve cut the discount rate, its lending rate to financial institutions, to 3.25 percent from 3.5 percent, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans that would be available to big Wall Street firms on Monday.
The Fed was also widely expected to again cut its headline interest rate, the fed funds rate, by as much as a full percentage point to 2 percent at a regular meeting set for Tuesday.
In currency trading, the dollar plunged as low as 95.72 yen — its lowest since August 1995 — dragged down by a gloomy outlook for the American economy and prospects for lower interest rates. The euro rose to a record high $1.5903.
Japanese officials quickly called for calm in the currency markets, but did not announce any plans for intervention to shore up the greenback by buying up dollars.
Oil prices, meanwhile, hit an all-time trading high in Asia as the greenback's tumble and the decline in stock markets prompted investors to seek shelter in commodities such as crude oil. Light, sweet crude for April delivery spiked to a record $111.80 a barrel in electronic trading on the New York Mercantile Exchange.
On Friday, U.S. stocks sank after the announcement of a Fed plan in conjunction with JPMorgan to alleviate the liquidity crisis at Bear Stearns touched off concerns about the severity of credit troubles in the world's largest economy. The Dow Jones industrial average fell 194.65, or 1.60 percent, to 11,951.09.
Wall Street appeared poised for another drop when trading resumed Monday morning. Dow index futures were down 164 points, or 1.4 percent, to 11,818, while the Standard & Poor's 500 index was down 21.7 points, or 1.65 percent, to 1,291.6.
Further slides in Asian markets are likely, said Ismael Cruz, the governor of the Philippine Association of Securities Brokers and Dealers, Inc.
"The outlook is very grim," he said.
Associated Press writers Chisaki Watanabe in Tokyo, Gillian Wong in Singapore, Anthony Deutsch in Jakarta and Kelly Olsen in Seoul contributed to this report.
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