Reassurances from Schwartz fail to clear the storm
Saturday 15 March 2008
Alan Schwartz went on television on Wednesday to try to dispel the rumours mounting over Bear Stearns for the previous 48 hours. Speaking from a conference in Florida, he painted a sunny picture of the bank's finances.
The scenario clouded over rapidly. By Thursday night, Mr Schwartz was fighting a storm that threatened to deluge the company. The sandbags dropped by the Federal Reserve yesterday came late, very late indeed.
At the start of the week, the plunging value of mortgage-backed securities issued by a Bear Stearns affiliate was generating gossip of a cash shortage at the company itself, which a denial from Bear Stearns only perpetuated. Mr Schwartz's performance on CNBC on Wednesday – claiming there was no deterioration in the company balance sheet – only put a new spotlight on the firm. Soon, it no longer mattered if there was a real financial crisis at Bear Stearns. There was a very real crisis of confidence in the bank, and Britons need look no further than Northern Rock to see that when confidence fails, so do institutions.
By Thursday afternoon, trading desks buzzed with stories of increasing numbers of institutions and hedge funds refusing to trade with Bear Stearns.
At least six major institutions in London – including Commerzbank and Credit Suisse – had stopped giving prices to the US bank, one credit trader said.
"We tried to confront and dispel these rumours and parse fact from fiction," said Mr Schwartz. "Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated." Late on Thursday, it was clear to all Bear's executives that, at the current rate, it would soon run out of money to cover its trading obligations.
Calls were placed to the Fed and to JPMorgan Chase, its clearing bank: Please, help. The Fed met yesterday to approve the rescue plan, invoking a Depression-era law that enables it to provide funds beyond the banks that would normally be able to approach the "discount window" for emergency cash. Although JPMorgan, which is allowed to approach, is channelling the money to Bear, the Fed is at risk of incurring losses if the collateral proves insufficient – a fact that required a vote of Fed governors. Ben Bernanke, the Fed chairman, opened a speech yesterday with a nod to his efforts. "I had a busy morning," he said.
- 1 Avengers: Age of Ultron: Nearly 700 German cinemas refuse to show movie
- 2 Donald Trump decides that Baltimore riots are Barack Obama's fault
- 3 X Factor in crisis as numbers of people auditioning plummets
- 4 General Election 2015: Stephen Hawking says he will vote Labour
- 5 Baltimore riots: Furious mother marches her son home live on TV
Bali Nine executions live: Indonesian firing squad shoots dead eight drug offenders despite outcry around world, but a ninth is spared
Keith Harris dead: Orville the Duck ventriloquist dies aged 67 following battle with cancer
The four utterly contradictory polls that tell the story of this election and why it is pointless trying to predict the outcome
Donald Trump decides that Baltimore riots are Barack Obama's fault
General Election 2015: Prospect of Labour-SNP coalition makes one in four voters less likely to support Ed Miliband, says survey
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
EU exit would hit UK economy much harder than neighbouring countries, study finds
Andrew Lloyd Webber: Phantom of the Opera writer mocked after issuing a warning about Ed Miliband and Nicola Sturgeon
General election 2015: Labour will toughen hate crimes legislation surrounding Islamophobia
iJobs Money & Business
£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...
£Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...