JPMorgan says to buy Bear Stearns for $2 a share

JPMorgan Chase & Co set a deal to buy stricken rival Bear Stearns for a rock-bottom price, while the U.S. Federal Reserve expanded lending to securities firms for the first time since the Great Depression to prop up the financial system.

The shock news, the biggest sign yet of how devastating the credit crisis is for Wall Street, slammed the U.S. dollar to a record low against the euro, pummeled Asia stock markets and boosted gold and low-risk bonds.

The Fed also made an emergency quarter-point cut in its discount rate and agreed to finance up to $30 billion of Bear’s assets as U.S. Treasury Secretary Henry Paulson pledged the U.S. government is prepared to do “what it takes” to maintain the stability of the financial system.

Bear’s predicament shows how fast things can change on Wall Street.

JPMorgan is paying just $2 a share for Bear, or a total of $236 million, although the bank put a total $6 billion price tag on the deal including litigation and severance costs.

Still, the per-share payout is just one-fifteenth of Bear’s stock price on Friday and miles off its record share price of $172.61 last year.

That means Bear’s shareholders, including British billionaire Joseph Lewis and Bear Stearns’ Chairman Jimmy Cayne, will have their holdings wiped out by the deal.

“It’s scary for what it says about the value of financial assets, if a company is worth only a small percentage of book value,” said Emanuel Weintraub, managing director of Integre Advisors, a New York-based money management firm.