USA TODAY - JPMorgan, N.Y. Fed step in to rescue Bear Stearns

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NEW YORK

JPMorgan Chase (JPM)says in conjunction with the Federal Reserve Bank of New York it will provide temporary funding for Bear Stearns (BSC).

The funding will be provided for up to 28 days. During that time, JPMorgan Chase will also help Bear Stearns find permanent financing.

BEAR STEARNS STATEMENT: Text of Friday's announcement.JPMORGAN STATEMENT: Text of its Friday announcement.

The fifth-largest U.S. securities firm, known as a trader and underwriter of mortgages and other debt, in recent days has batted down speculation it is strapped for cash. Executives say it has enough capital and cash to weather the current storm.

The company has struggled since the middle of 2007 due to the fallout in the mortgage and credit markets. Last summer, two hedge funds worth billions of dollars managed by Bear Stearns collapsed because of bad bets on securities backed by subprime mortgages loans given to customers with poor credit history.

Recently, hedge funds and banks handling long-term trades, such as credit-default swaps, were being extra cautious when Bear was a counterparty, The Wall Street Journal reported Thursday.

As a result, the Fed, through its discount window, will provide non-recourse, back-to-back financing to JPMorgan Chase, the commercial bank said. JPMorgan said it does not believe this transaction exposes its shareholders to any material risk.

JPMorgan Chase also said it is working with Bear Stearns to secure permanent financing or other alternatives for the company.

In a memo to employees, Alan Schwartz, president and chief executive officer of Bear Stearns, said the temporary financing will allow the company to "get back to business as usual."

Schwartz, in a separate statement, said: "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction.

"Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."

The investment bank added there is no guarantee any permanent strategic alternatives will be successful.

There has been speculation this week that Bear Stearns is struggling with liquidity problems. Schwartz earlier denied those reports.

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