Bear Stearn shareholders wiped out completely
- 00:02:20
- YouTube
Bear Stearn shareholders wiped out completely
http://www.intererst.co.nz Welcome to interest.co.nz's morning briefing of what's news here and around the world. Everything you need to start the day in 90 seconds at 9'oclock.... Starting now With more stunning news overnight of the terms of the deal to rescue Bear Stearns. America's fifth biggest investment bank was sold to JP Morgan late on Sunday US time for US$236 million or 2$ a share. This is company that earlier this year had almost US$6 billion a year in revenue. The bank itself was worth US$10 billion early in 2007. Even as recently as Friday Bear Stearns was worth $3.5 billion. This is shocking. Shareholders have been wiped out completely. This was all designed to avoid Bear Stearns going into bankruptcy. The US Federal Reserve is also providing US$30 biliion of financing for mortgage bonds that simply can't be sold. Separately the Federal Reserve has agreed to lend to broking houses rather than just banks. This is unprecedented and some believe if the Fed had done this last week then Bear Stearns may not have failed. This is the first time the Fed has done this since the depression of the 1930s. The mood in Wall St is one of shock and panic. Interest rates on short term government debt have plunged to lows not seen since the 1950s. The yield on the US 10 year treasury dropped to 3.32%. Said one trader: They're not buying these treasuries because they're looking for value. They're buying it out of sheer terror. What does this mean for us? In the short term our currency has fallen below 80 US cents as foreign investors pull their heads in and avoid any trades. But interest rates on anything that is not a US government bond is rising. We've already seen our fixed mortgage rates rise half a percentage point in the last six months because of the global turmoil. More rises are quite likely. That was 90 seconds at 9 o'clock. I'm Bernard Hickey for interest.co.nz.
YouTube | March 17, 2008
