The Bear Stearns (BSC) implosion is causing shock waves throughout Wall Street, global markets and exchange traded funds (ETFs).
While Bear’s stock sank 86% in intraday traded, financial and broker-dealer ETFs took hits, too:
- iShares Dow Jones US Financial Services (IYG): down 3% intraday, down 18.2% year-to-date
- Financial Select Sector SPDR (XLF): down 3.6% intraday, down 17% year-to-date
- iShares Dow Jones US Broker-Dealers (IAI): down 12.8% intraday, down 26.2% year-to-date, Bear Stearns is 4.1% of assets
While Bear Stearns isn’t a holding of IYG or XLF, the swift collapse of what was once one of the world’s largest investment banks is spreading fear through the financials as Wall Street and investors wonder who is next.
What happened with Bear Stearns depends on whom you believe. CEO Alan Schwartz blamed rumors, write Liz Moyer and Mitchell Martin for Forbes. The company had spent several days last week trying to calm the markets by saying its liquidity and cash positions were fine. By Friday, that was no longer the case and JP Morgan (JPM) stepped into bail them out.
This weekend, JP Morgan bought Bear Stears at $2 a share, for $236.2 million, reports Jeannine Aversa for the Associated Press.
The looming question on investors’ minds is whether Bear Stearns is just the first of many banks to fall. The Federal Reserve, for its part, is doing all it can to head off a total meltdown. It’s positioned itself as a lender of last resort for Wall Street investment houses, and cut its emergency lending rate by 0.25%, to 3.25%.
One financial ETF reaping the rewards of this tumble is the ProShares UltraShort Financials (SKF), which was up 7.5% in intraday trading. Year-to-date, it’s up 32.3%.