JPMorgan Chase has said it is to acquire ailing US bank Bear Stearns for $2 a share.

JPMorgan to acquire Bear Stearns

JPMorgan Chase has said it is to acquire ailing US bank Bear Stearns for $2 a share.

The deal values Wall Street's fifth largest investment bank at about $236m.

The bank has been at the centre of the US mortgage debt crisis. Its shares fell 46% to $30 after emergency funding for it was announced on Friday.

The news comes as the Federal Reserve cut its lending rate to banks to 3.25% from 3.50%, and created a new lending facility for big investment banks.

Under the deal, the Federal Reserve will fund up to $30 billion of Bear Stearns's less liquid assets.

Withdrawn funds

Friday's news of emergency funding for the bank raised fears that one of the biggest names on Wall Street was on the verge of collapse.

JPMorgan Chase was to provide the money to Bear Stearns for 28 days with the Federal Reserve of New York's backing.

Bear Stearns's problems stem from the global credit crunch and the worry is that other lenders may also have major funding problems, analysts said.

Recently, speculation had intensified that the bank was struggling to fund its daily business.

BBC business editor Robert Peston said Bear Stearns was taken to the brink of insolvency last week by a sudden collapse in confidence on the part of its hedge fund clients.

As a result, these clients rushed to withdraw their assets.

'Other banks'

The credit crunch was caused because banks became less willing to lend to each other after they suffered large losses on investments linked to the US housing market, and the sub-prime sector in particular.

MAIN SUB-PRIME LOSSES SO FAR Citigroup: $18bn Merrill Lynch: $14.1bn UBS: $13.5bn Morgan Stanley $9.4bn HSBC: $3.4bn Bear Stearns: $3.2bn Deutsche Bank: $3.2bn Bank of America: $3bn Barclays: $2.6bn Royal Bank of Scotland: $2.6bn Freddie Mac: $2bn JP Morgan Chase: $3.2bn Credit Suisse: $1bn Wachovia: $1.1bn IKB: $2.6bn Paribas: $197m Source: Company reports

Sub-prime lenders focus on clients with poor or non-existent credit histories, and a record number of borrowers have defaulted on loans.

The subsequent freezing-up of the credit markets created problems for a number of companies which relied on borrowing money to fund their business.

In the UK, Northern Rock ran into trouble when its line of relatively cheap credit dried up.

At the end of last year, Bear Stearns reported that it had made its first ever quarterly loss after buying investments linked to the US mortgage market.

It was one of the first to admit it had problems linked to sub-prime mortgages, after two of its hedge funds had to be bailed out.

Robert Peston said that last week's move by JPMorgan and the Fed of New York was essentially a central bank bailout, and described the crisis as "America's Northern Rock".