Stocks slide expected on Wall Street

March 17, 2008 6:15:19 AM PDT
It's the calm before the storm on Wall Street.

U.S. stocks headed for a sharply lower open Monday as Wall Street and other global markets reeled from JPMorgan Chase & Co.'s government-backed buyout of faltering investment bank Bear Stearns Cos.

On top of the buyout, the Federal Reserve took the extraordinary step of lowering the rate it charges to loan directly to banks just two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 percent.

The stunning implosion of Bear Stearns stirred fear among investors worldwide that other banks had sizable exposure to troubled credit markets. Stocks fell sharply in Asia and Europe and oil prices set fresh records in Asian trading.

JPMorgan said Sunday it would acquire Bear Stearns for $236.2 million in a deal backed by the Fed. JP Morgan will pay $2 per share, though Bear Stearns closed at $30 per share Friday.

Dow Jones industrial average futures fell 190, or 1.59 percent, to 11,794. Standard & Poor's 500 index futures fell 23.60, or 1.83 percent, to 1,269.40, while Nasdaq 100 index futures fell 32.50, or 1.88 percent, to 1,692.

Bond prices surged as investors rushed for quality. The yield on the benchmark 10-year Treasury note, which move opposite its price, fell to 3.34 percent from 3.44 percent late Friday. The dollar was lower against other major currencies, while gold prices jumped.

Light, sweet crude rose 28 cents to $110.49 per barrel in premarket electronic trading on the New York Mercantile Exchange. Overseas, Japan's Nikkei stock average fell 3.71 percent, while Hong Kong's Hang Seng index fell 5.18 percent. In morning trading, Britain's FTSE 100 fell 2.34 percent, Germany's DAX index dropped 3.12 percent, and France's CAC-40 lost 2.63 percent.

Bear's buyout, while reassuring in that it didn't let the company endure a total collapse, was nevertheless an unwelcome development as it makes clear the extent to which credit markets are struggling to operate. The pain for investors in Bear Stearns, which succumbed to soured bets on now troubled mortgages for borrowers with poor credit, will be sizable. JPMorgan is acquiring Bear, including its midtown Manhattan headquarters, for about 1 percent of what the investment bank was worth little more than two weeks ago. The 85-year-old company has 14,000 workers worldwide.

The collapse of the world's fifth-largest investment bank comes after a short-term bailout Friday that JPMorgan led and that the Fed backed. It was the first such intervention by central bankers since the 1930s.