Financial stocks were battered in trading yesterday after United States investment bank JPMorgan bought its crippled rival Bear Stearns for $US2 a share on March 17.
The S&P/ASX 200 Financial sector dropped yesterday by 4.35 per cent to 4661.
It has lost 31.1 per cent since the start of the year, making it the worst performing sector within the S&P ASX/200 index.
Bear nearly collapsed last week when its chief executive Alan Schwartz said the firm's liquidity was starved and it was forced to accept a bailout by the US Federal Reserve and then bought out by JPMorgan for $US2 a share.
The panic surrounding Bear, once worth $US159.36 a share, sparked a sell-off in the local markets, Opis Capital executive director Dean Fergie who manages around $200 million told InvestorDaily.
"The market is arguably factoring in the worst case scenario at the moment," he said.
"There are a lot of very nervous investors and they are scared of losing money and they will aggressively sell down positions at the smallest chance."
Investment banks Babcock and Brown (BNB) and Macquarie Group were the hardest hit in trading.
BNB fell $1.38 or 10.12 per cent to $12.26 while Macquarie declined $3 or 6.32 per cent to $44.50
"Where there is smoke there is fire," Lincoln Indicators analyst Elio D'Amato said.
"We expect some eventual fallout to occur and Macquarie and BNB definitely operate within that global space."
D'Amato said that he was surprised that Macquarie or BNB had not reported any write-downs or losses in the midst of a global credit crunch.
