Bear Stearns sale looms as panic spreads

Published on Saturday 15 March 2008 13:36

ALAN Schwartz, chief executive of Bear Stearns, will come under fierce attack from anxious investors tomorrow as speculation mounts that he will be forced to liquidate or sell the troubled investment bank.

Schwartz has brought forward the 85-year-old bank's first-quarter results as panic sets in on Wall Street that this latest liquidity crisis could claim further high-profile victims, including Lehman Brothers.

Bear Stearns' investors stand to lose billions from the crisis, which began on Friday when Schwartz was forced to admit he had sought emergency funding from the Federal Bank of New York and JP Morgan Chase. Schwartz had said earlier in the week there was "absolutely no truth" to rumours the bank was experiencing problems.

He later admitted Bear's liquidity position deteriorated "significantly" during the week, forcing it to tap into the Fed's emergency finance facility, known as the "discount window", on Friday morning.

But the lifeline is only temporary and fears are growing that Schwartz may be forced into a liquidation or sale of the bank if he can't come up with an emergency plan over the next 28 days.

Sources in the US say talks with potential suitors have already begun, with Royal Bank of Scotland and JC Flowers, the private equity firm, named among the interested parties. A spokesman for RBS vigorously denied any involvement.

Bear Stearns stock lost half of its value in the first 30 minutes of trading in the US on Friday, eventually closing at $30, down 47.4%. The rapid decline in the share price is understood to have left some of its biggest investors, including Joseph Lewis, a former shareholder in Rangers Football Club, with billions of dollars' worth of losses. It is thought Lewis has lost $1bn on his stake since last summer.

The crisis has led to doubts over other major Wall Street players, and rumours were circulating the US markets on Friday that Lehman Brothers could suffer a similar fate.

But a spokesman for the bank, the US's fourth largest, said: "Our liquidity position has been, and continues to be, very strong." He said the bank had secured a three-year credit line from several other banks.

The Bear Stearns crisis will no doubt prey heavily on the mind of US Federal Reserve chairman Ben Bernanke over the weekend as he prepares for the Fed's interest rate meeting on Tuesday.

It is thought the Fed may be forced to reduce interest rates to as low as 1.75% over the course of its next two meetings on Tuesday and April 30 as it attempts to inject confidence back into the battered US markets.

Last week a $21bn fund owned by Carlyle Group, the private equity firm, collapsed after it defaulted on $16bn worth of debt.