JPMorgan to buy Bear Stearns for $2 a share

NEW YORK - JPMorgan Chase said Sunday it will acquire rival Bear Stearns for a bargain-basement $236.2 million — or $2 a share — a stunning collapse for one of the world’s largest and most storied investment banks.

The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.

The Federal Reserve and the U.S. government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened. Early indications, though, pointed to continued fear about the stability of the U.S. market, as the dollar hit fresh record lows against the euro, gold broke through $1,015 an ounce and Asian stocks sank.

“This is going to go down in very historic terms,” said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. “This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we’re probably heading into a recession.”

The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets. Meanwhile, JPMorgan said it will guarantee all business — such as trading and investment banking — until Bear Stearns’ shareholders approve the deal, which is expected to be completed during the second quarter.

JPMorgan Chase Chief Financial Officer Michael Cavanaugh did not say what would happen to Bear Stearns’ 14,000 employees worldwide or whether the Bear Stearns name would survive. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns’ prime brokerage business, which completes trades for big investors such as hedge funds.

Risky bets on securities tied to subprime mortgages — loans given to customers with poor credit history — crippled Bear Stearns, the nations’ fifth-largest investment bank. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank’s official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

“Having taking Bear Stearns out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday,” JPMorgan Chase Chief Financial Officer Michael Cavanaugh told analysts during a conference call.