Case Document Filed Page of EX I I EX I I Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase Home I This Day in History I March Bear Stearns collapses sold to LP Morgan Chase This Day In History MARCH I Bear Stearns collapses sold to J.P Morgan Chase On March Bear Stearns the 85-year-old investment bank narrowly avoids bankruptcy by its sale to J.P Morgan Chase and Co at the shockingly low price of per share Bear Stearns seemed to be riding high with a stock market capitalization of billion in early But its increasing involvement in the hedge-fund business particularly with risky mortgage-backed securities paved the way for it to become one of the earliest casualties of the subprime mortgage crisis that led to the Great Recession READ MORE The Crash What HaP-P-ened to All That MoneY Housing booID goes bust In the early to mid-20s as home prices in the United States rose lenders began giving mortgages to borrowers whose poor credit would otherwise have prohibited them from obtaining a mortgage With the housing market booming Bear Stearns and other investment banks became heavily involved in selling complex securities based on these subprime mortgages with little regard for how risky they would turn out to be https history Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase After peaking in housing prices began to decline rapidly and many of these subprime borrowers began defaulting on their mortgages Mortgage originators started feeling the effects of the crisis first New Century Financial which specialized in subprime mortgages declared Chapter bankruptcy in April In June Bear Stearns was forced to pay some billion to bail out the High-Grade Structured-Credit Strategies Fund which specialized in risky investments like collateralized debt obligations CDOs and mortgage-backed securities MBSs The following month the firm revealed that the High-Grade fund and another related hedge fund had lost nearly all of their value due to the steep decline in the subprime mortgage market Bear Stearns collapses For the fourth quarter of Bear recorded a loss for the first time in some years and CEO James Cayne was forced to step down Alan Schwartz replaced him in January Barely two months later the collapse of Bear Stearns unfolded swiftly over the course of a few days It began on Tuesday March when the Federal Reserve announced a billion lending facility to help struggling financial institutions That same day the rating agency Moodys downgraded many of Bears mortgage-backed securities to and levels or junk bonds Unlike a regular bank which can use cash from depositors to fund its operations an investment bank like Bear Stearns often relied on short-term even overnight funding deals known as repurchase agreements or repos In this type of deal Bear offered bundles of securities to another firm or an investor such as a hedge fund in exchange for cash which it would then use to finance its operations for a brief period of time Relying on repos-which all Wall Street investment banks did to some degree meant that any loss of confidence in a firms reputation could lead investors to pull crucial funding at any time putting the firms future in immediate jeopardy https history Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase Taken together Moodys downgrade and the Feds announcement which was seen as an anticipation of Bears failure destroyed investors confidence in the firm leading them to pull out their investments and refuse to enter into any more repo agreements By Thursday evening March Bear had less than billion on hand not enough to open its doors for business the following day J.P Morgan Chase cuts a deal Schwartz called on J.P Morgan Chase which managed the firms cash to ask for an emergency loan and told the president of the New York Federal Reserve Tim Geithner that his firm would go bankrupt if the loan didnt come through The Fed agreed to provide an emergency loan through J.P Morgan of an unspecified amount to keep Bear afloat But soon after the New York Stock Exchange opened on Friday March Bears stock price began plummeting By Saturday J.P Morgan Chase concluded that Bear Stearns was worth only million Desperately seeking a solution that would stop Bears failure from spreading to other over-leveraged banks such as Merrill Lynch Lehman Brothers and Citigroup the Federal Reserve called its first emergency weekend meeting in years On Sunday evening March Bears board of directors agreed to sell the firm to J.P Morgan Chase for per share-a percent discount from Bears closing stock price on Friday Subsequent negotiations pushed the final price up to per share The Fed lentJ.P Morgan Chase up to billion to make the purchase Harbinger of the Recession The unexpected downfall of the nations fifth-largest investment bank founded in shocked the financial world and sent global markets tumbling As it turned out Bear Stearns would be only the first in a string of financial firms brought low by the combination of income losses and diminishing confidence in the market https history Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase In September Bank of America Corp quickly purchased the struggling Merrill Lynch while venerable Lehman Brothers collaP-sed into bankruP-tCY a stunning failure that would kick off an international banking crisis and drive the nation into the biggest economic meltdown since the Great DeP-ression Sources Kate Kelly Street Fighters The Last Hours of Bear Stearns the Toughest Firm on Wall Street New York Portfolio William Cohan House of Cards A Tale of Hubris and Wretched Excess on Wall Street New York Doubleday A Timeline of Bear Stearns Downfall The MotleY Fool March How subprime killed Bear Stearns CNN March Timeline A dozen key dates in the demise of Bear Stearns Reuters March BY HISTORY.COM EDITORS HISTORY.com works with a wide range of writers and editors to create accurate and informative content All articles are regularly reviewed and updated by the HISTORY.com team Articles with the HISTORY.com Editors byline have been written or edited by the HISTORY.com editors including Amanda Onion Missy Sullivan Matt Mullen and Christian Zapata Citation Information Article Title Bear Stearns collapses sold to J.P Morgan Chase Author History.com Editors Website Name HISTORY URL httgs history com/this-da Date Accessed June Publisher A Television Networks Last Updated March Original Published Date January https history Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase Fact Check We strive for accuracy and fairness But if you see something that doesnt look right click here to contact us HISTORY reviews and updates its content regularly to ensure it is complete and accurate Also on This Day in History MARCH I James Brown performs at Rikers ART LITERATURE AND FILM HISTORY 23-year-old peace activist Rachel Corrie is crushed to death by Israeli bulldozer MIDDLE EASTERN HISTORY NHL star Maurice Richard suspended riot ensues SPORTS https history Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase American journalist Terry Anderson kidnapped MIDDLE EASTERN HISTORY First liquid-fueled rocket INVENTIONS SCIENCE Vietnamese villagers killed by U.S soldiers in My Lai Massacre Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase Motown soul singer Tammi Terrell dies ART LITERATURE AND FILM HISTORY The Scarlet Letter is published ART LITERATURE AND FILM HISTORY Actor Robert Blake acquitted of wifes murder CRIME year old woman murders her lover CRIME President Reagan orders troops into Honduras COLD WAR https history Case Document Filed Page of PM Bear Stearns collapses sold to J.P Morgan Chase James Madison Father of the Constitution is born AMERICAN REVOLUTION Fighting on lwo Jima ends WORLD WAR II Contact Us Copyright Policy Privacy Policy Terms of Use Ad Choices 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