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Rally Fizzles as S& P, Dow And Nasdaq Fall Back 2%
Visa Chairman Joseph W. Saunders is joined on the trading floor by students from Brooklyn, N.Y. Visa's IPO was the biggest in U.S. history.
(Business Wire)
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Concerns about the health of Wall Street firms accelerated earlier this week after investment bank Bear Stearns was forced into a buyout by J.P. Morgan Chase to avoid bankruptcy. Now a battle appears to be shaping up among Bear's shareholders over whether to approve the deal. Some are considering a campaign to scuttle it or seek a higher price from another bidder. About a third of Bear Stearns's shares are owned by employees.
Many are angry that the firm sold itself for $2 a share. Bear Stearns had been trading at $30 Friday and as high as $70 earlier last week.
Some analysts said speculation over a shareholder revolt is keeping Bear Stearns's stock well above $2. Yesterday it closed at $5.33. Others conjectured that Bear Stearns's bondholders, who would get their money back if J.P. Morgan buys the firm, are buying up shares to prevent shareholders from scuttling the deal.
On Sunday, as it was overseeing the Bear Stearns buyout, the Fed for the first time allowed investment banks to borrow short-term cash in exchange for putting up collateral. Normally, that's only open to regular, commercial banks, through the "discount window."
Analysts and Fed insiders worried that this new lending program may not have its intended effect of bolstering confidence in top financial firms if those companies felt there was too much of a stigma in borrowing money this way. Fed leaders also worried that Wall Street firms would become too reliant on it.
Early indications were that neither fear has materialized. Goldman Sachs, Morgan Stanley and Lehman Brothers told Bloomberg News that they have used the new window, which is similar to the discount window for regular banks but has some technical differences.
Staff writer Neil Irwin contributed to this report.
