Stocks head for sharply lower open
NEW YORK -- 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 supporting 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 jumped to a fresh record.
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 238, or 1.99 percent, to 11,746. Standard & Poor's 500 index futures fell 30.80, or 2.38 percent, to 1,262.20, while Nasdaq 100 index futures fell 42.70, or 2.48 percent, to 1,681.80.
Bond prices rose as investors rushed for safety. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.39 percent from 3.44 percent late Friday.
The dollar fell to a record low against the euro and hit a 12 1/2 year low against the yen. Meanwhile, gold prices jumped.
Light, sweet crude fell $1.29 to $108.92 per barrel in premarket electronic trading on the New York Mercantile Exchange. Oil prices rose to a high of almost $112 a barrel Monday.
Overseas, Japan's Nikkei stock average fell 3.71 percent, while Hong Kong's Hang Seng index fell 5.18 percent. In afternoon trading, Britain's FTSE 100 fell 2.69 percent, Germany's DAX index dropped 3.65 percent, and France's CAC-40 lost 2.99 percent.
Bear's buyout, while perhaps reassuring in that it didn't result in a bankruptcy filing, was nonetheless 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.
In another unusual move, the Fed said it set up a lending option for big investment banks to secure short-term loans.
The market's concern wasn't limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.
Skittish investors sent Lehman shares down in early trading. The stock was down 11 percent in premarket electronic trading.
Wall Street's worries about the financial sector come in a week in which the major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.