When is an investment bank not a bank?

When is an investment bank just like a bank?

There are legal differences in terms of how one is regulated and how one is not.

Apparently this weekend the Federal Reserve decided that it didn’t matter if Bear Stearns was an investment bank or not.

It was bankrupt, and it had to be salvaged, for fear its failure could cause a “run on the banking system.” (Or so said may of the Wall Street watchers today.)

Enter JP Morgan Chase, which last week had responded to the first Fed plea for assistance in regard to Bear Stearns.

This time, JP Morgan got a sweet deal at about $2 a share, and Bear Stearns equity holders got left holding the proverbial empty bag. But the bond holders did just fine — as JP Morgan picked up the firm’s bonds. And the Feds are helping to guarantee them.

Sweet deal.

Now that all the excitement is over — what’s the collateral damage?

The fact that Bear Stearns was insolvent enough to warrant such a drastic move.

Tends to negate those who have been saying of late that the credit crunch and the liquidity problems facing financial institutions had “run its course” and was leveling out.

Nah. We haven’t seen the worst yet.

There is one bit of direct collateral damage to the airline sector. Frank Boroch, who I thought did a good job analyzing the airline industry for Bear Stearns is no doubt out of a job. JP Morgan Chase already has a fully-staffed airline research group, both on the equity and the debt side.

In terms of the bigger picture and how all this financial angst affects the airline sector — we saw it in big red numbers today — across the sector’s stock prices. However, many of the airline stocks actually picked up some ground from where they were earlier in the day.

Still not good though.

Just looking over the carnage we see that shares of US Airways lost 10%, closing at 7.45, taking the biggest hit for the day, while shares of ExpressJet, were, interestingly, up 10% on the day, closing at 1.74.

In between we had a long list of losers, including AMR which lost 3% on the day, closing at 8.95, Delta, which dropped another 4%, ending the day at 9.23, Northwest, which lost a healthy 6%, dropping back to 8.92, United Airlines, which lost 8%, closing at 20.91, and Continental Airlines, which dropped back 5%, closing the day at 18.87.

Ticker: (NYSE:AMR), (NYSE:LCC), (NYSE: CAL), (Nasdaq:UAUA), (NYSE:DAL), (NYSE:NWA).

Technorati Tags: airline analysts, airline stocks, airlines, American Airlines, AMR, Continental Airlines, Delta Air Lines, JP Morgan Chase, Northwest Airlines, United Airlines, US Airways