Funding bail-out for Bear Stearns

US investment bank Bear Stearns has been forced into a funding bail-out after a cash crisis for the business worsened in the past 24 hours.The Federal Reserve is lending an unspecified amount of secured funding to JPMorgan for an initial period of 28 days, which it will in turn lend to Bear Stearns, senior Fed staff said.Bear Stearns blamed "market chatter" for its deteriorating liquidity position, and said the cash injection would allow it to continue normal operations.The company's shares had fallen almost 20 per cent in the past week as doubts over its funding position spread through the markets.Chief executive Alan Schwartz said: "Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity."The bank, which has 14,000 staff and a base in London, said it was in talks with JP Morgan over "permanent financing or other alternatives" - likely to include a takeover.The bank was an early victim of the financial turmoil in June last year when two of its hedge funds heavily exposed to mortgage-backed investments collapsed after nervous investors called for their money back.News of a cash crisis has impacted on the London market, sending the FTSE 100 Index into reverse.Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said the news would hit already fragile confidence in the banking sector.He said: "Clearly this is not going to help. A number of US investment banks are reporting first-quarter earnings next week and this is another thing that adds to the misery."Bear Stearns is not a massive company but it is well-known and big enough to cause concerns. It pours petrol on the fire when sentiment was pretty weak anyway, and it's an example of banks being far less willing to deal with each other."© Independent Television News Limited 2008. All rights reserved.

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ITN | March 14, 2008

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