JP Morgan, Fed To Bail Out Bear Sterns

The New York Times says that JP Morgan and the Fed have reached an agreement to offer Bear Sterns a short-term “financial lifeline.”

Bear Stearns, facing a grave liquidity crisis, reached out to JPMorgan on Friday for a short-term financial lifeline and now faces the prospect of the end of its 85-year run as an independent investment bank.

With the support of the Federal Reserve Bank of New York, JPMorgan said in a statement that it had “agreed to provide secured funding to Bear Stearns, as necessary, for an initial period of up to 28 days.”

For the next month, JPMorgan will work with Bear Stearns to reach a solution for its financing crisis. Options could include organizing permanent financing or, according to people briefed on the discussions, buying the bank for a discounted price.

The Times speculates that the end may be drawing near for the company as investors scramble to pull their funds.

On Wednesday, Bear’s chief executive, Alan Schwartz, said in an interview on CNBC that his firm had ample liquidity, but his words have not been enough to prevent what seem to be a classic run on the bank.

In a statement issued on Friday, he said: “Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”

In other news, if Bear Stearns makes it out alive and is looking for new investment opportunities, I have some AAA rated sacks of garbage outside that I’m interested in selling.

JPMorgan and Fed Move to Bail Out Bear Stearns [NYT]