The news wasn't surprising but the price tag was a real stunner.

On Sunday J.P. Morgan chase agreed to pay $2 per share to acquire failing Wall Street investment bank Bear Stearns, lock, stock, and barrel. And the purchase price, by the way, will be paid entirely in stock and includes purchase of the company's 45 story New York office tower.

Starting on Thursday Bear Stearns began to suffer what was really an old fashioned run on the bank. Monies held by investment banks have no federal insurance such as that obtained by commercial and retail banks through the FDIC. Bear Stearns, which wrote off $1.9 billion in losses last quarter largely due to its investments in the subprime market announced Friday morning that its financial condition had deteriorated significantly overnight and cast doubt on its own survival. It then arranged to access the Federal Reserve's emergency finance facility, known as the discount window, with the assistance of J.P. Morgan because, again, investment banks do not have such federal assistance. The emergency funds were lent for a period of 28 days and secured by collateral but Bear Stearns recourse to such measures led to wide-spread speculation that the huge bank's days were numbered.



It was widely rumored over the weekend that J.P. Morgan would be acquiring Bear Stearns and the price that was being bandied about as late as the evening news on Sunday was $30 per share - the closing price of the stock on Friday after it dropped 47 percent in trading that day. But the total value of the transaction, about $236 million, is a fraction of the market value of Bear Stearns on Friday - $3.5 billion. One year ago Bear Stearns stock was selling for $170 per share.

According to The Wall Street Journal and The New York Times, The Federal Reserve is providing as much as $30 billion in financing for Bear Stearns' less-liquid assets such as mortgage securities. If these assets lose even more value it will be the Fed that will take the hit, not J.P. Morgan.

Apparently even as frantic negotiations were going on to complete the J.P. Morgan acquisition on Sunday before the Asian markets opened, Bear Stearns was simultaneously preparing documents for a bankruptcy filing.

Bear Stearns had been one of the biggest gamblers (although we were calling them "investors" at the time) in the mortgage securities business. It provided large lines of credit to several subprime lenders including the now-bankrupt New Century Mortgage and owns EMC Mortgage Servicing, a subprime mortgage servicer. It underwrote Alt-A mortgages (those that, in terms of risk, fall between prime and subprime paper) and, according to Bloomberg News, in February the seriously delinquent/in foreclosure rate for its Alt-A loans was 15 percent, nearly twice the industry average.

Monday promises to be a rocky day as nervous investors question the viability of other big banks and wonder if the Federal Reserve will continue to step in to shore up or save others that, like Bear Stearns, are considered "too big to fail."