US bank JPMorgan Chase has bought troubled rival Bear Stearns for a rock-bottom price.
In a related move the US Federal Reserve made an emergency interest rate cut and opened direct lending to Wall Street.
The news is the biggest sign yet of how devastating the credit crisis is for Wall Street.
Bear Stearns' major shareholders will have their holdings virtually wiped out by the deal, which will see JPMorgan pay only about $2 a share for Bear in JPMorgan shares.
The $236m value of the deal compares with estimates of more than $1 billion that have been placed on Bear's world headquarters building on Manhattan's Madison Avenue.
Before it faced speculation about liquidity problems, which were quickly followed by a run on the bank last week, Bear's stock had been trading at around $70.
Bear Stearns' cash reserves were drained by fleeing customers on Thursday, and on Friday the bank secured emergency funding from the Fed, extended through JPMorgan Chase.
Bear Stearns trades interest-rate swaps, credit default swaps, and other investment products with dozens of banks globally. If Bear Stearns went bankrupt, all of its trading partners could face big losses and fear could spread.
JPMorgan Chase, the third largest US bank and one of the few global banks relatively unscathed by the credit crunch, has sought to limit its liabilities in the deal by having the Fed fund up to $30 billion of Bear's less liquid assets.
The Fed said last night that it had cut the discount rate to 3.25% from 3.5%, effective immediately. It also unveiled a new lending facility at the discount rate for primary dealers - big Wall Street firms with which it deals directly in financial markets.
Bear Stearns, one of 20 primary dealers, had been unable to borrow directly from the window, because it had previously been open only to deposit-accepting banks.
Meanwhile, MF Global, one of the world's largest futures and options brokers, says it has enough funds on hand and access to alternative sources of capital to conduct normal business.
MF Global shares fell by as much as 70% in New York amid speculation that the firm had liquidity problems. MF Global said it had $1.4 billion in committed credit lines and no exposure to sub-prime mortgage-backed securities or Bear Stearns investor Joe Lewis.
