The financial services giant JPMorgan Chase will acquire rival Bear Stearns for a bargain-basement $236.2 million - or $2 a share - in a stunning collapse for one of the world's largest and most famous investment banks.
The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.
The US Federal Reserve and the US government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened.
Early indications, though, pointed to continued fear about the stability of the US market, as the dollar hit fresh record lows against the euro, gold broke through 1,015 an ounce and Asian stocks sank.
"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 Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said.
The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.
Meanwhile, JPMorgan said it will guarantee all business - such as trading and investment banking - until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter.
JPMorgan Chase chief financial officer Michael Cavanaugh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the Bear Stearns name would survive.