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Stocks Dive On News of Turmoil at Bear Stearns
A truck is loaded with corn in Curran, Ill. U.S. food prices rose 0.4 percent in February.
(By Seth Perlman -- Associated Press)
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The news about Bear Stearns, which holds large investments in mortgage-backed securities, led the sell-off.
"That was the trigger today," said Denis J. Amato, chief investment officer with Ancora Advisors in Cleveland. "When you got a big firm like that faltering, it is sort of like peeling an onion layer by layer: The more you peel, the more you find, and the more you want to start crying."
After three days of denying market rumors that its cash position was in trouble, Bear Stearns said yesterday that its access to cash "had significantly deteriorated," and it announced a plan in which J.P. Morgan, a rival, would borrow money from the Fed's discount window and lend it to Bear Stearns for up to 28 days.
Traders said investors were fearful that Bear Stearns, one of Wall Street's biggest players, would dump assets, which would likely put further pressure on prices and cause other Wall Street firms to write down similar assets.
"If Bear Stearns is forced to sell assets, that will force the other firms to have to mark to market," said Sal Morreale, sales trader at Cantor Fitzgerald. "That is a big issue."
Shares of Lehman Brothers, the largest underwriter of U.S. mortgage bonds, tumbled $6.73, or 14.6 percent, to $39.26, after getting a $2 billion line of credit. Citigroup, J.P. Morgan and Bank of America also each dropped more than 3 percent.
Also yesterday, Federal Reserve Chairman Ben S. Bernanke said the central bank will act aggressively to help homeowners at risk of foreclosure. The institution is committed to "fully employing our authority, expertise and resources to help alleviate their distress," Bernanke told the National Community Reinvestment Coalition at its annual meeting in Washington.
Staff writer Tomoeh Murakami Tse in New York contributed to this report.
