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JP Morgan swoops on stricken Bear

JP Morgan, the giant Wall Street bank run by Jamie Dimon, has bought stricken investment bank Bear Stearns for just $2 per share ($236m). Bear, variously described last week as the fifth or seventh or ninth biggest investment bank on Wall Street, was worth $169 a share last year.

The US Federal Reserve has agreed to guarantee $30bn of Bear's "less liquid" assets (ie the ones Morgan won't be able to sell).

Bear, which helped to spark the credit crunch in the summer of 2007 when two of its hedge funds hit trouble, finally hit the buffers last Thursday when a number of hedge funds (activist investors) suddenly withdrew their money.

JP Morgan stepped in to act as an intermediary with the Fed to arrange an emergency loan but it rapidly became clear that the wounded Bear needed a new owner.

At the same time the Fed, the US equivalent of the Bank of England, has also cut the rate it lends to banks in a desperate attempt to get the inter-bank lending market moving again. It is expected to slash US retail banking rates to 2% later this week.

For Morgan's Jamie Dimon, who made his reputation helping Sandy Weill build Citigroup into the world's biggest bank before the two fell out, the deal is another triumph; making Morgan the most powerful player on Wall Street along with Goldman Sachs (a more specialist operation).

In many ways Bear Stearns is Wall Street's equivalent of Northern Rock; here, the difference being that the Rock had lots of small private investors pulling out their money whereas Bear had a relatively small number of big corporate investors doing it.

The Fed's solution to the problem, guaranteeing the former bank's assets even as it is being taken over, is strikingly similar to the deal suggested by Lloyds TSB for Northern Rock back in the summer.

That was rejected, of course, by the Bank of England, the Financial Services Authority and the Treasury.

Will the Bear rescue put a floor under the US financial crisis?

No, because there are lots of other horror stories set to crawl out of the woodwork.

We're now getting into the banks' reporting season in the US and today Merrill Lynch announced a staggering $14bn writedown in mortgage business, pushing it into a 2007 loss of $7.8bn.

Worse than this, it lost a mind-boggling $9.83bn in just the last three months of 2007.

In these circumstances, banks have two problems at least. One is there's no liquidity because it can't sell assets to meet depositor demands. Two, if the value of the assets falls far enough they dip below liabilities and the bank is insolvent.

That's why the Fed is bravely (some might say rashly) offering to buy these "assets" from them but the money it has put aside ($200bn) is way less than that owed in the giant US housing market (somewhere over a trillion dollars).

At some stage the US government is going to have to prop up US mortgage customers rather than the banks that have lent unwisely to them.

This is a difficult thing for any US government to do, let alone a right-wing Republican one, but sooner or later the White House is going to have to bite the bullet.

Sooner one hopes.

Is another Olympics boycott on the way?

If so it's bad news for lots of companies, including our very own WPP.

Sir Martin Sorrell is always keen to tell us how big sporting events like the Olympics support the advertising market and this summer's fest in Beijing is set to be the biggest Olympics so far.

But the current protests in Tibet and the Chinese authorities' heavy-handed response to them must cast a shadow over Beijing 2008.

In 1980 the US led a boycott of the Moscow Olympics over the Soviet invasion of Afghanistan (how times change, eh?).

This was supported by 62 countries in full or in part (one of which was China). Some of them, including the UK supported the boycott but allowed their athletes to go anyway, which was good news for gold medalists Seb Coe, Steve Ovett and Alan Wells.

Four years later the Los Angeles Olympics were hit by a smaller tit for tat boycott led by the Soviet Union.

At the time many people felt that such political interventions heralded the imminent demise of the Games but, of course, they've gone on to become an even bigger (some might say bloated) event.

And very important for sponsors, broadcasters, advertisers and the like, indeed the whole marketing world.

China is already under fire for its human rights record and violent repression in Tibet is not going to help its case. The Tibetans, who quite reasonably feel that China has no business in their country, are not going to pass up this opportunity and so it's likely to get worse.

As ever the key is the attitude of the US. Public and indeed much political opinion there will be wholly on the side of the Tibetans and against the Chinese.

But the US economy is rather dependent on the Chinese these days and Fed Reserve boss Ben Bernanke, Treasury Secretary Hank Paulson and their friends on Wall Street need a major row with China like a hole in the head.

President George Bush has been sitting on the fence about the Games so far, saying basically that what the Chinese do is their business (not a view he takes about every other country).

As if George, Ben and Hank (and indeed Martin) didn't have enough to worry about.

Banking stocks lead European markets down

Europe's least favourite banks HSBC, Royal Bank of Scotland and UBS led the markets down this morning (Monday), all falling around 10% in early trading.

HSBC, the hardest-hit, is heavily exposed to the US housing market, RBS has been a heroic lender in recent years and UBS has lost more on US mortgages than any of its European peers.

In the Far East the Tokyo Nikkei and the Hong Kong Hang Seng lost over 4%, also in response to the financial crisis.

As ever Wall Street, which opens at lunchtime (UK time), will be the key to whether these sharp falls turn into a rout.

Stephen Foster is a former news editor of ±±¾©Èü³µpk10, former editor of Marketing Week and Evening Standard ad columnist. He is a partner in Editorial Partnership and writes the blog and Politics of the Media for Brand Republic.