stock recap

Bear Stearns Collapse Leads to Global Selloff

U.S. stocks experienced a roller coaster ride on Monday, after a global sell off was triggered by the collapse of Bear Stearns. The Federal Reserve took emergency action, cutting the discount rate by 25bp and offering to lend to securities dealers at the same rates as banks.

The Dow gained +21.16, while the Nasdaq Composite lost -35.48, and the S&P 500 -11.54.

Bear Stearns (BSC | Quote | Chart | News | PowerRating) agreed to be sold to JPMorgan Chase for $2 per share, or $236 million. BSC shares closed at $30 on Friday, valuing the 85-year old investment bank at $3.5 billion.

Many analysts felt the price JPMorgan Chase (JPM | Quote | Chart | News | PowerRating) is paying significantly undervalues Bear Stearns, even allowing for litigation, de-leveraging and integration costs. Especially since the Fed is providing up to $30 billion in financing for BSC's illiquid assets. The decision means the Fed, not JPMorgan Chase, is carrying substantial risk.

The deal, struck over the weekend, sent shockwaves around the world, and led to heavy selling of financial stocks.

Shares of Lehman Brothers (LEH | Quote | Chart | News | PowerRating) plunged more than 20%, Citigroup (C | Quote | Chart | News | PowerRating) lost 5.9%, Merrill Lynch (MER | Quote | Chart | News | PowerRating) fell 5.4% and Morgan Stanley (MS | Quote | Chart | News | PowerRating) dropped 8%.

MF Global (MF | Quote | Chart | News | PowerRating) shares fell as much as 80%, despite reassurances from the company that it was not experiencing liquidity problems.

The dollar sunk to a 12-year low versus the yen, and treasuries rose, sending the yield on 3-month T-bills to the lowest level since the 1950's.

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