Bear Stearns in liquidity crisis

by Gill Montia

Story link: Bear Stearns in liquidity crisis

US investment bank, Bear Stearns, has turned to both JP Morgan and the Federal Reserve for emergency short-term funding.

A statement issued by Alan Schwartz, the president and chief executive of the 85-year-old bank said: “The company can make no assurance that any strategic alternatives” to fund itself in the long term “will be successfully completed”.

Earlier this week, Bear Stearns denied rumours of liquidity problems and according to Mr Schwartz, the funding difficulties have arisen in last 24 hours.

JPMorgan is reported to be working with the bank to secure long-term financing, while at the same time providing a 28-day loan.

It is rumoured that Bear Stearns holds a substantial volume of “alt-A” mortgage securities.

These are lower-end sub-prime mortgages that do not necessarily have the full documentation normally required to support a home loan.

Meanwhile, the US Federal Reserve is expected to reduce interest rates from their current 3% level, next week. Analysts’ forecasts vary between a cut of 0.50% and 0.75%.