After Bear Stearns Rescue, Who's Next?

Despite the weekend deal in which JPMorgan Chase & Co. bought Bear Stearns for a fraction of its value last week, worries that other banks had sizable exposure to troubled credit markets sent global markets tumbling. Wall Street managed to rally from sharp losses Monday as investors went bargain-hunting.

A complete collapse of Bear Stearns might have completely crushed the already-dwindling confidence in the global financial system, which has frozen up after last year's collapse of the subprime mortgage market.

Bear Stearns was the most exposed to risky bets on the loans; it is now the first major bank to be undone by that market's collapse. But the fact that a major investment bank could reach the verge of buckling and be sold at such a discount sent dismay through Wall Street and beyond.

"One reaction is shock that a company that reaffirmed its book value at around $84 on Wednesday can be worth $2 per share four days later on Sunday," said Deutsche Bank analyst Mike Mayo.

The financial industry wants to know exactly how badly Bear Stearns bet on mortgage-backed investments. Unwinding the nation's fifth-biggest investment houses should provide some insight into what other financial institutions might have on their books.

And with Bear Stearns seemingly gone, investors pondered who might be next. Lehman Brothers Holding Inc. stock lost 21 percent Monday, following a 15 percent drop on Friday amid concerns it might be having similar liquidity issues. Lehman Chief Executive Richard Fuld denied Monday that the firm was having liquidity problems.

Bear Stearns shares fell $26.26, or 87.5 percent, to $3.74 above the shockingly low price of $2 per share that JPMorgan Chase is paying while JPMorgan rose $2.88, or 7.8 percent, to $39.39. UBS AG, hit hard by the same type of write-downs for mortgages that felled Bear Stearns, dropped more than 14 percent in Zurich.

JPMorgan announced Sunday night that it would acquire Bear Stearns for $236.2 million in a deal that was fast-tracked by the federal government to avoid a bankruptcy. The price represents roughly 1 percent of what the investment bank was worth just 16 days ago.

The Federal Reserve and the U.S. government swiftly approved the all-stock buyout to complete the deal before world markets opened. The Fed also essentially made the takeover risk-free by saying it would guarantee up to $30 billion of the troubled mortgage and other assets that got the nation's fifth-largest investment bank into trouble.