U.S. stocks tumble on bank’s troubles
Stocks were down sharply on Wall Street on Friday afternoon after JPMorgan Chase and the Federal Reserve moved to bail out Bear Stearns, the beleaguered investment bank.
An early-morning bounce gave way to a vertigo-inducing drop after Bears announcement, which ignited fears that large banks remain vulnerable to the continuing credit crisis. The Dow Jones industrials plunged 300 points, recovered much of that ground and then sank anew.
Shortly after 2:30 p.m., the Dow was down 287.62, or 2.4 percent, at 11,927.40.
The Standard Poors 500-stock index, a broader measure of the stock market, was down 2.9 percent after following a similar morning trajectory. The Nasdaq composite index lost 3.1 percent. Major European markets closed off about 1 percent.
The news from Bear Stearns came after the bank had insisted for days that its finances were in adequate shape. But the situation rapidly changed.
“Our liquidity position in the last 24 hours had significantly deteriorated,” Bears chief executive, Alan Schwartz, said in a statement. “We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”
So far, that confidence has been elusive. Bear Stearnss stock price was down nearly 40 percent, to $34.68 a share, after falling as low as $26.85, its lowest level in nearly a decade. Shares of JPMorgan lost 4 percent. Financial services firms took a direct hit, losing the most of any sector in the S.P. 500.
The news out of Bear Stearns also overshadowed some good economic data: a surprisingly upbeat report on inflation from the Labor Department. The closely watched Consumer Price Index stayed flat in February after a dip in energy prices, opening the door for more aggressive interest rate cuts by the Federal Reserve.
Investors are now expecting a three-quarter point cut to the Feds benchmark rate when the central bank meets on Tuesday. That news would usually buoy stock markets, but investors hadnt counted on Bear Stearnss surprise.
