JP Morgan (JPM) with the backing of New York Fed has agreed to provide “non-recourse, back to back” financing to Bear Stearns (BSC) “as needed” (JPM Press Release, Fed Press Release, BSC Press Release).
What this means, as far as I understand, is that JP Morgan will borrow from the Fed’s Discount Window, as much as Bear Stearns needs, and lend it to Bear Stearns. If Bear defaults, the Fed will reimburse JP Morgan which is why JPM noted in its press release that this transaction does not expose JP Morgan shareholders to any material risk.
Bear shares are getting whacked (BSC 2 Day Chart). With 119 million shares trading hands so far today (12:45pm EST), 100% of Bear’s outstanding shares have traded hands – and we’re only halfway through the day!
Needless to say, the market isn’t too excited about this (Dow: -228, S&P: -29, Nasdaq: -53).