Bear Stearns gets emergency cash from Fed,JPMorgan

Wall Street investment bank, which has been battered by the subprime mortgage crisis, said "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," said Alan Schwartz, the company's president and chief executive. "We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated," he said.

"We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations," the Bear Stearns CEO said. The emergency funding will be available to Bear Stearns "as necessary" for an initial period of up to 28 days, JPMorgan said in a separate statement

Separately, the Federal Reserve pledged "to provide liquidity as necessary" to the financial system as it said its board unanimously had approved the emergency funding arrangement for Bear Stearns. "The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the Fed said in a statement.

The Fed announcement came amid growing concerns about a liquidity crunch in the financial industry that is stuck with mortgage-backed securities in a market that is frozen because of the meltdown in US real estate. The US central bank last week announced a new program that would allow some brokerages as well as banks to swap their mortgage securities for US Treasury bonds to help unblock the market. But that program will not start until March 27.

JPMorgan Chase said the New York Fed, through its discount window, would provide it with the financing for the Bear Stearns funding, adding it did not believe this transaction exposed its shareholders to "any material risk." JPMorgan Chase said it was working closely with Bear Stearns on securing permanent financing or "other alternatives" for the Wall Street investment bank, which has been battered by a global credit crunch and the US housing slump.

Bear Stearns has sustained hundreds of millions of dollars in losses in the mortgage-related credit crisis that erupted in mid-2007. Bear Stearns said the arrangement was a secured loan facility for up to 28 days with JPMorgan Chase and that it was in talks with JPMorgan about permanent financing or other options. The company added that it cannot make any assurance that strategic alternatives will be successfully completed.

Investors punished Bear Stearnss shares in New York trade, sending the stock plunging 49 percent to 27.77 dollars at 1500 GMT. Treasury Secretary Henry Paulson, without specifically addressing the Bear Stearns news, assured that the US financial system "is flexible and resilient."

"This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve and the SEC (Securities and Exchange Commission), Paulson said in a statement. "I appreciate the leadership of the Federal Reserve in enhancing the stability and orderliness of our markets," he said. "I am confident that the efforts of regulators and market participants will minimize disruption to the system."

The US real-estate meltdown, the worst in decades, and a credit crunch that stemmed from defaults on subprime, or high-risk, mortgages, have played havoc with banks finances in recent months. Schwartz became CEO last month after the resignation of James Cayne in the wake of massive losses. Headquartered in New York, the troubled global investment banking, securities trading and investment firm has approximately 14,000 employees worldwide.