JPMorgan to buy Bear Stearns

By Megan Davies and Joseph Giannone

NEW YORK (Reuters) - JPMorgan Chase & Co said on Sunday it would buy stricken rival Bear Stearns for just $2 a share in an all-stock deal that values the U.S. investment bank at the centre of the credit crisis at about $236 million (116.4 million pounds).

The takeover, which has the backing of the U.S. Federal Reserve and the Treasury, underlines the risks banks and financial companies are facing as the U.S. mortgage crisis deepens, while the rock-bottom price -- more than 90 percent below its Friday close -- raises questions over valuations in the banking sector.

Minutes after the deal was announced, the U.S. central bank made an emergency interest rate cut and opened direct lending to Wall Street, but the moves failed to soothe panicked investors.

The U.S. dollar fell to a new record low against the euro and Asian stock markets were pummelled in early Monday trade.

Bear's stock closed on Friday at $30.85, valuing it at $3.5 billion, after tumbling 46 percent that day. Shares in the fifth largest U.S. investment bank, which employs more than 14,000 people, hit a record high of more than $171 in January 2007.

"The fact that the Bear Stearn's board is letting these assets go at such a deep discount brings into question the value of assets on a lot of corporate balance sheets," said Timothy Ghriskey, chief investment officer at Solaris Asset Management in New York.

"The main concern is what other financial institutions are worth in the current environment, given the discount that JP Morgan is acquiring Bear at."

Bear Stearns' cash reserves were drained by fleeing customers on Thursday, and on Friday the bank secured emergency funding from the Federal Reserve, extended through JPMorgan.