Bear Stearns could lose its freedom

New York: Bear Stearns' 85 years as an independent Wall Street firm may be coming to an end as JPMorgan Chase & Co. considers buying the crippled company.

Teetering on the brink of collapse from a lack of cash, Bear Stearns got emergency funding on Friday from the Federal Reserve and JPMorgan in the largest government bailout of a US securities firm.

The move failed to avert a crisis of confidence among Bear Stearns's customers and shareholders, who drove the stock down a record 47 per cent.

After denying earlier last week that access to capital was at risk, Bear Stearns Chief Executive Officer Alan Schwartz said that the company's cash position had "significantly deteriorated" in the past 24 hours. The Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said.

Now JPMorgan, led by Chief Executive Officer Jamie Dimon, is considering buying Bear Stearns, according to three people briefed on the matter.

No agreement has been reached and it's possible no deal will be completed, said the people, who declined be identified because the discussions are confidential.

A person close to JPMorgan said the bank may also be interested in buying Bear Stearns's prime brokerage unit, which provides loans and processes trades for hedge funds.

Dimon, whose firm has suffered fewer losses than rivals during the credit-market contraction, has said he's open to making an acquisition. The bank has "plenty of capital," he told the audience at a dinner hosted by the Economic Club of Washington on March 12, the day before his 52nd birthday.

The Fed acted to prevent the failure of the second-biggest underwriter of US mortgage bonds and forestall a potential market panic as losses by banks and brokers reached $195 billion and stocks plunged for a third day last week.

Devastating blow

"I don't think they can afford to let Bear go," said Charles Geisst, the author of 100 Years on Wall Street, referring to the New York Fed bailout. "At this particular moment in time, it would be a devastating blow to the markets."

Bear Stearns, founded in 1923, acted in response to "market rumours" of a liquidity crisis, CEO Schwartz said in a separate statement.

He said last week that the company's "liquidity cushion" was sufficient to weather the credit-market contraction. Traders have been reluctant to engage in long-term transactions with Bear Stearns as the counterparty, the Wall Street Journal reported March 12.

Statement: Cash shortfall

Bear Stearns' cash shortfall began March 11 after rumours spread that the second-biggest underwriter of US mortgage bonds lacked sufficient access to capital, and lenders and clients began withdrawing funds.

"Beginning on that day" and then "increasingly throughout the week, lenders and customers began to remove funds from the firm, despite its stable capital cushion," the Washington-based US Securities and Exchange Commission said in a statement released late on Friday. "As a result, Bear Stearns's excess liquidity rapidly eroded."