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CRISIS OF CONFIDENCE
JPMorgan, an institution that has stepped in to rescue banks for more than a century, at the least is expected to purchase Bear's sizable prime brokerage unit, a person familiar with the situation told Reuters on Friday.
Investors lost confidence in Bear in recent weeks, because it is the smallest of the major investment banks and, at the same time, renowned as an aggressive trader in credit and mortgage markets. Bear generates a much bigger percentage of its revenue from the U.S. fixed income markets than its competitors.
In a classic run on the bank, traders last week stopped doing business with Bear because they feared the firm might go bust, draining cash and making a collapse all the more likely.
Given that lack of confidence, it would be more difficult for Bear to remain in business and rebuild, even if can raise capital or minimize its losses.
But the Federal Reserve is unlikely to allow Bear to fail, for fear it could trigger a chain reaction of failures. The investment bank has massive positions in interest-rate swaps, credit default swaps, and other derivatives with all of Wall Street. If it failed, a number of other banks could be hurt and investor confidence in the already fragile financial system could be further shaken.
Following previous crises, famous firms such as Kidder Peabody, Salomon Brothers and First Boston were forced to seek buyers with robust balance sheets.
JPMorgan, an institution that has stepped in to rescue banks for more than a century, at the least is expected to purchase Bear's sizable prime brokerage unit, a person familiar with the situation told Reuters on Friday.
Investors lost confidence in Bear in recent weeks, because it is the smallest of the major investment banks and, at the same time, renowned as an aggressive trader in credit and mortgage markets. Bear generates a much bigger percentage of its revenue from the U.S. fixed income markets than its competitors.
In a classic run on the bank, traders last week stopped doing business with Bear because they feared the firm might go bust, draining cash and making a collapse all the more likely.
Given that lack of confidence, it would be more difficult for Bear to remain in business and rebuild, even if can raise capital or minimize its losses.
But the Federal Reserve is unlikely to allow Bear to fail, for fear it could trigger a chain reaction of failures. The investment bank has massive positions in interest-rate swaps, credit default swaps, and other derivatives with all of Wall Street. If it failed, a number of other banks could be hurt and investor confidence in the already fragile financial system could be further shaken.
Following previous crises, famous firms such as Kidder Peabody, Salomon Brothers and First Boston were forced to seek buyers with robust balance sheets.
