Credit crunch rocks Bear Stearns

US banking giant, Bear Stearns, has received emergency government funding, which has raised fears in stock markets around the world.

The bank admitted it could go bust as Wall Street shares plummeted and the $20 billion (£9.8 billion) value of Bear Stearns was halved.

The US bank said even overnight emergency funding might not be enough to keep it afloat. Other banks refused to lend money in a repeat of the problem that brought down Northern Rock.

JP Morgan Chase will provide the money to Bear Stearns for 28 days with the Federal Reserve of New York’s backing. It is also trying to get long-term financing for the bank.

Traders believe Bear Stearns could go bust. According to analyst Manoj Ladwa of Trad Index, the best outcome is that it is bought outright by JP Morgan Chase. But even if you believe that is going to happen, it is going to be at a far lower price than its shares have reached yet.

Ladwa added Bear Stearns is so large that ‘confidence is severely dented and no bank is safe’.

Bear Stearns is Wall Street’s fifth largest investment bank and has been at the centre of the US mortgage debt crisis. Speculation had intensified recently that it was struggling to fund its daily business.

All banks, including Britain’s Big Four are at risk due to the credit crunch. HBOS lost over 5% of its value in just one hour. Barclays was down 4% while the RBS was down 3%.

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