Sunday, March 16, 2008

Fed cuts, Bear $2 bucks

A weekend rate cut, and a cut-rate deal for Bear Stearns. Here's the latest.

The Fed has cut the discount rate to 3.25 percent.

Here's more from Forbes:

"In two emergency moves to bolster market liquidity on Sunday night, the Federal Reserve cut its discount rate for direct loans to banks by 0.25 pct point to 3.25 pct and created a special lending facility at the New York Federal Reserve Bank for primary dealers in the securitization market.

The two initiatives are 'designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth,' the Fed's statement said."

This most recent lending facility announcement means the Fed will accept a "broad range" of collateral from primary dealers. Guess this means that the pawn shop is growing in size...

As for the weekend discount rate cut, that's just a prelude to Tuesday's Fed meeting. Traders are still expecting a full percentage point cut in the Federal Funds rate, to 2 percent, down from the current 3 percent rate.

And the other big news item? Here you go: Bear Stearns is taken out at $2 a share. Here's more from Deal Journal:

"That means $236 million. Effectively zero. And with J.P. Morgan’s risk somewhat limited by the Fed, which is taking the extraordinary step of funding up to $30 billion of Bear Stearns’ less-liquid assets.

This is what they call on the Street “going donuts.” But there is nothing sweet about the thousands of employees who have lost much of their life savings and most likely their jobs, too.

The $2 per share basically sets down an important market marker: For now, being a Wall Street trading house is no longer a license to print money. It’s a license to absorb plenty of risks. Risks so presumably so toxic and unknown that J.P. Morgan had to turn to the Fed in the way it did."

This deal puts Bear at less than 1/10th its value from last week.

More background on the JPMorgan Chase buyout of Bear Stearns over at Bloomberg.

Hmm. Wonder what Monday will look like.