Moody's downgrades Bear Stearns

Moody's Investors Service said it downgraded the long-term ratings of Bear Stearns Cos. Inc. to Baa1 from A2 and its short-term ratings to Prime-2 from Prime-1.

The agency also downgraded Bear Stearns' subordinated bonds to Baa2 from A3, its preferred stock to Ba1 from Baa1, the trust preferred stock of Bear Stearns Capital Trust I and III to Baa2 from A3 and Bear, Stearns Securities Corp.'s issuer rating to A3 from A1 and senior unsecured short-term rating to Prime-2 from Prime-1.

The ratings continue to be on review for a possible downgrade.

Moody's said the downgrade was in response to the rapidly deteriorating liquidity position of Bear, which necessitated an emergency 28-day secured funding line from JPMorgan Chase backstopped by the Federal Reserve Bank of New York, and the agency's opinion that Bear's customer franchise has been hurt by this crisis and will continue to erode if a long-term stabilizing solution is not quickly achieved.

Bear's liquidity situation deteriorated precipitously over the last two days, severely constraining the company's financial and operating flexibility. Moody's said Bear did not face any sizeable net write-downs or credit losses, and its franchise was intact, but the liquidity crisis is the result of diminishing confidence in Bear by its counter-parties and customers, compounded by persistently negative market conditions.

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