Bear Stearns takeover sparks fresh financials rout

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HONG KONG/LONDON, March 17 (Reuters) – An emergency rescue of Bear Stearns Co Inc stunned the Wall Street bank’s staff and pummelled financial stocks on Monday amid fears that few banks are safe from deepening financial market turmoil.

Bear Stearns staff turning up for work found the value of their stock options in tatters and the future of their jobs up in the air.

But the grim mood spread further than Wall Street’s fifth biggest bank as shares in European banks including UBS in Switzerland, HBOS in Britain and SocGen in France fell over 10 percent as concern swept markets that the value of risky assets needs to be marked down even further.

In Asia some of Japan’s biggest banks also fell, with Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group down 3 percent or more.

JPMorgan Chase said late on Sunday it would buy Bear Stearns for just $2 a share — more than 90 percent below its price at Friday’s close.

The deal underlined the risks banks are facing as the U.S. mortgage crisis deepens and the rock-bottom price raised questions over valuations across the industry. To read more please double click on.

Bankers around the world were already fretting about job losses as the prospect of recession in the United States grips financial institutions.

Bear Stearns, roughly 30 percent owned by its staff and proud of its above-average level of inside ownership, employs 14,000.

“The valuation is virtually nothing,” said a Singapore-based Bear Stearns employee. “It is indeed rock bottom. We have tanked, it’s very, very sad. Everyone is in mourning.”

At its New York headquarters in Manhattan, a $2 bill was taped to the frame of its revolving doors — a grim reminder of the takeover price.

The mood among U.S. staff was solemn. “My job’s been eliminated,” said one male employee arriving for work in New York. The employee, who declined to be identified, said he had been given 90 days notice.

Bear’s fall shows how fast things can change on Wall Street. It was caught in a tailspin after speculation swirled last week that it faced problems and its cash reserves were drained by fleeing customers on Thursday.

JPMorgan is paying $236 million for its 85-year-old target, just a fraction of its $20 billion market value in January 2006.


Entrepreneur Joseph Lewis, a reclusive Englishman who made a fortune trading currencies, had bought a stake of about 10 percent in Bear Stearns and stands to lose around $1 billion.

Shares in other U.S. banks were expected to fall on Monday after European banks took another lurch down. By 1000 GMT the DJ Stoxx European banking sector index was down 6 percent at 312, its lowest level since August 2004.

“If you get a crisis of confidence in the wholesale banking space and something the size of Bear Stearns could go under, then people start to panic. You get a real fear factor,” said Simon Maughan, analyst at MF Global in London.

Dirk Hoffman-Becking, analyst at Sanford Bernstein, said European capital markets banks were better positioned than U.S. rivals. “But in the end nobody is safe,” he added.

UBS shares tumbled 13 percent on concern it faces billions more in losses on vulnerable assets, notably for Alt-A mortgages, which are of higher quality than subprime loans but also considered risky and an area where Bears Stearns has been hit. The Alt-A worries sent shares in Britain’s biggest mortgage lender HBOS down 10 percent.

There is a clear crisis of confidence across the financial sector and other measures by the U.S. Federal Reserve to aid liquidity announced on Sunday are unlikely to reassure investors enough, analysts said.

Pressure on banks’ capital positions it also likely to intensify and is expected to prompt many to seek further cash injections from sovereign wealth funds.

But the jittery mood means even well-positioned banks may be reluctant to take advantage of acquisition opportunities, bankers and analysts said.

“I think M&A is too difficult now. This is about catching a falling chainsaw. It’s not just about cutting yourself if you get it wrong, it’s about losing a limb,” a London banker said.

Bear Stearns could have attractive assets for rivals such as Barclays seeking to expand in the United States, but analysts said JPMorgan would be unlikely to sell on any prized assets such as its prime brokerage capabilities, clearing services, equities platform and energy operation.