Bear Stearns today warned Wall Street that it was not certain it would survive after admitting that both JP Morgan and the Federal Reserve Bank of New York provided the investment bank with emergency short term funding.

The bank said today it will bring forward its first quarter earnings announcement to Monday, March 17 as Alan Schwartz, Bear Stearns' chief executive admitted it was forced to seek funding following a sudden spike in demand from investors wanting to withdraw their cash.

Mr Schwartz said today: "The company can make no assurance that any strategic alternatives" to fund itself in the long term "will be successfully completed".

Today's admission follows a staunch denial from the 85-year old investment bank on Monday that it was not facing liquidity problems.

Background

• Citic seeking bigger stake in Bear Stearns

• Wall Street’s top bankers lose $1billion

• Wall Street welcomes Alan Schwartz

• Bear Stearns in the red on $1.9bn sub-prime hit

• Bear Stearns to cut 650 jobs

Bear Stearns chief to step down after losses

James Cayne is understood to be stepping down after the bank admitted huge sub-prime mortgage losses and shed 650 jobs

• It's tough at the top: 20 CEOs no longer in the job

• Barclays sues Bear Stearns over hedge fund collapses

• Bear Stearns in the red on $1.9bn sub-prime hit

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On March 10, Bear Stearns said it "denied market rumors regarding the firm's liquidity. The company stated that there is absolutely no truth to the rumors of liquidity problems that circulated today in the market."

Mr Schwartz said, "Bear Stearns' balance sheet, liquidity and capital remain strong."

But Mr Schwartz said today that it had only experienced funding difficulties in the last 24 hours.

He said: "Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."

Shares in Bear Stearns plunged 43 per cent to $32.50 within an hour of markets opening.

The Dow Jones industrial average fell 203.20 points to 11,942.50 while in London, the FTSE 100 lost 72.3 points to 5,618.4, as the struggling bank highlighted the weak US economy and escalated fears of a full-blown recession.

JP Morgan is providing a secured 28-day loan to its smaller rival and has also been hired by the bank to try and find alternative means of securing long term funding.

JPMorgan said the NY Fed will provide “non-recourse, back-to-back financing” for the deal so it doesn’t believe the transaction represents any material risk for its shareholders.

In addition, JPMorgan said it is “working closely” with Bear Stearns on securing “permanent financing or other alternatives” for the company.

Today's surprise announcement from Bear Stearns shifted the focus on the US Federal Reserve and how deeply it will cut interest rates next week on March 18.

Estimates vary between a 0.50 per cent reduction to a 0.75 per cent cut after the interest rate was reduced to 3 per cent at the beginning of the year.

The US Federal Reserve said today: "The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system.

"The Board voted unanimously to approve the arrangement announced by JPMorgan Chase and Bear Stearns this morning.”

The US Securities and Exchange Commission (SEC) said it has been in contact with the US Treasury Department, the Fed and the NY Fed during talks about the financing agreement.

The SEC said: "We will continue to work closely together in a way that contributes to orderly and liquid markets.”

Banking sources speculated that Bear Stearns could have been hit by last night's collapse in value of so called alt-A, or low-end prime mortgage securities.

These are mortgages that are granted to borrowers with some past credit problems or who do not have all the correct documentation to gain approval for a home loan.

"The Alt-A market fell out of bed last night and Bear would have been completely caned by this. They hold a bunch of these securities," one investment banking source told Times Online.

"Against what you might normally expect, the sub-prime market rallied, but alt-A sold off."

He added that Bear Stearns probably faced steep margin calls from its bank lenders as a result of the fall in value of its mortgage debt securities.

Bear Stearns problems began to escalate in June this year, before the credit crunch ground markets to a halt in August, when it was forced to bail-out two sub-prime mortgage-backed hedge funds by pouring in $3.2 billion. The bank was eventually forced to close the funds.

The bank cemented a poor year when it announced its first quarterly loss in its 85 year history of $854 million on a $1.9 billion write-down on sub-prime backed assets.

Mr Schwartz, previously president at Bear Stearns, was promoted to chief executive earlier this year to replace James Cayne who stayed on as chairman.

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