NEW YORK - Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then sank again by more than 100 points.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.
Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night — two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.
“This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again,” said Robert Pavlik, portfolio manager at Oaktree Asset Management.
The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate — the rate banks charge each other for overnight loans — by at least a half-point on Tuesday, and perhaps even a full point.
Still, the market remained extremely volatile. The sale of Bear Stearns — and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million — stirred fear among investors worldwide about other banks’ exposure to the troubled credit markets.
“You’re going to have some very weak players pushed out of business,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan’s buy of Bear Stearns and Bank of America Corp.’s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.
The Dow fell 128.63, or 1.08 percent, to 11,822.46, after venturing into positive territory.
Broader indexes also dropped in choppy trading. The Standard & Poor’s 500 index fell 24.45, or 1.90 percent, to 1,263.69, while the Nasdaq composite index fell 43.59, or 1.97 percent, to 2,168.90.
JPMorgan was by far the biggest gainer among the Dow components, rising $3.06, or 8.4 percent, to $40.60. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.
Bear Stearns shares fell 88 percent to $3.60 — still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.
The pain for stockholders in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank’s worth little more than two weeks ago. Bear Stearns’ buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.
Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.
The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.
Light, sweet crude dropped $3.18 to $107.03 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.
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.
Lehman fell $11.15, or 28.4 percent, to $28.11.
This week, Lehman and other 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.
While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country’s factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.
The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.
Declining issues outnumbered advancers by 6 to 1 on the New York Stock Exchange, where volume came to 788.3 million shares.
The Russell 2000 index of smaller companies fell 14.35, or 2.16 percent, to 648.55.
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 2.25 percent, Germany’s DAX index dropped 3.09 percent, and France’s CAC-40 lost 2.32 percent.
___
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
