Bear market
In January 2007, shares in US bank and Wall Street institution Bear Stearns (NYSE:BSC) were at an all-time high price of $170. By last Thursday they had dropped to $57 and by the end of Friday they were worth $30.
This morning, Bear Stearns is being sold to fellow Wall Street giant J.P. Morgan Chase for $2 per share, valuing the $16 billion turnover company at a mere $236 million.
Furthermore, the Federal Reserve appears to be chucking in a $30 billion loan to sweeten the deal, secured against some Bear Stearns assets. This means that if those assets decline in value, the US tax-payer loses out, not J.P. Morgan Chase.
Predictably all sorts of financial markets reacted negatively to this further symptom of the malaise in the US banking sector. The dollar dropped against most currencies, with the ominous exception of the pound, and the FTSE is down two percent and counting. Gold and crude oil prices have hit record highs.
Not good, really. The key thing to look out for is whether all the ‘radical’ measures the Fed is implementing have a positive effect on the US. Commentators seem resigned to a recession over there now, the only question being how deep and how long. If it’s a bad one, the UK – with its close economic ties to the US and reliance on the financial sector – could well follow suit.
Update: 11:00 - 17/3
According to the BBC, the Bank of England has made an extra £5bn available for banks to borrow today.
Also, European stockmarkets have come under further pressure by a surprise profit warning from German industrial giant Siemens.
