JPMorgan to Buy Bear for $2 a Share

JP Morgan says the all-stock deal has received the required approvals from the federal government and the Federal Reserve.

The Fed will provide special financing to JPMorgan Chase in connection with the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) Bear Stearns and JPMorgan Chase & Co. were close to an emergency buyout deal Sunday night aimed at averting further panic in the financial markets.

Top executives from both companies were in 11th-hour talks about a deal that could sell Bear Stearns for a per share price that is likely to be "considerably less" than the $30 the stock closed at Friday, according to The Wall Street Journal.

Bear Stearns shares closed down $27, or 47.4 percent, to $30 on Friday as investors worried about a possible failure of the investment bank. The drop wiped $5.7 billion from the company's market value. JPMorgan shares fell $1.57, or 4.1 percent, to $36.54 on Friday.

Both sides were in a rush to complete a deal before financial markets opened in Asia for Monday morning trading, amid fears that a crisis of confidence could roil the system further, according to sources close to the talks who were not authorized to comment on the record.

Ahead of Tokyo's open, concerns about the credit crisis taking a new, more dangerous turn began to emerge in overseas markets. New Zealand shares opened sharply lower in overnight trading, tracking financial sector-driven weakness on Wall Street and signaling a potential sell-off in Asian markets.

Analysts on Wall Street say the bid to rescue Bear Stearns was more than just saving the nation's fifth-largest investment bank. Instead, keeping Bear Stearns afloat even if it is sold off was really propping up both the U.S. economy and global financial system.

"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 government, led by the Treasury Department and the Federal Reserve, was reported to be closely monitoring the talks. Any deal to rescue Bear Stearns was seen as a lifeline for the entire financial services industry, helping to stave off further weakness on Wall Street.

Treasury Secretary Henry Paulson, former chief executive of Goldman Sachs Group Inc., "has been in nearly continuous consultations all weekend," said Brookly McLaughlin, a Treasury Department spokeswoman. She wouldn't comment on the timing of any deal, other than to say "these things are never done until they're done."

After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.

Among the Wall Street investment banks, Bear Stearns was the most closely exposed to the mortgage crisis. The collapse of two of its hedge funds last summer was seen by many as one of the triggers of the current credit crisis.

Management at Bear Stearns worked on Sunday to call clients in Asia who are worried about their business relationship, according to a Bear Stearns employee who was not authorized to speak. Many customers have pulled business from the ailing investment bank since Thursday when rumors began to circulate that it was close to failure.

Many of Bear Stearns' 14,000 employees were phoned Sunday and told to show up to work at 7:30 a.m. EST, the person said.

The Journal also reported that if a deal with JPMorgan were to fall apart, Bear could conceivably file for bankruptcy late Sunday before Asian financial markets opened.

Calls to Bear Stearns and JPMorgan were not immediately returned. A spokeswoman for Lazard Ltd., the investment bank representing Bear Stearns in the talks, did not immediately return phone calls seeking comment.

This is not the first time Bear Stearns has earned a place in Wall Street history.

A decade ago, Bear Stearns refused to help bail out a hedge fund that was deemed "too big to fail," drawing the ire of its brethren on Wall Street. On Friday, it found itself hat in hand, looking for the same kind of aid.

It was a stunning collapse for Bear Stearns, founded in 1923 and best known in recent years for its success in the once-lucrative mortgage securities market. Its aggressive position in mortgages was also its undoing.

In June, two Bear-managed hedge funds worth billions of dollars collapsed and lost all their money. The funds were heavily invested in securities backed by subprime mortgages loans given to customers with poor credit history. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.

The funds' collapse and subsequent problems in the credit markets called into question Bear Stearns ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.

Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve Bank-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.

Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg joined Bear Stearns as a clerk, working his way up through the ranks to eventually take over as CEO in 1978. Greenberg was known for his irreverent style, and his regular memos to employees were turned into a book called "Memos from the Chairman."

Before Greenberg's ascendancy to CEO, Bear Stearns began to expand from its New York roots throughout the 1950s and 1960s, opening international offices and expanding its U.S. operations.

The company was opened in 1923 as an equity trading shop. Today, it has subsidiaries providing a wide array of financial services products for individuals, corporations, institutions and governments. Generally, it provides capital markets, wealth management and global clearing services to its customers.

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AP Business Writers Jeannine Aversa in Washington and Stephen Bernard contributed to this story.