Did you notice the Bear Stearns saga that played out this week?
Bear Stearns has problems?
Anybody notice any problems?
Bear Stearns stock lost nearly half of its market value, about $5.7-billion, in a matter of minutes and pulled the broader market down with it. The Dow Jones industrial average fell nearly 200 points.
If Bear Stearns were to go under, "it has the potential of bringing down the whole market," said Richard Bove, a Punk, Ziegel & Co. analyst. "This is the crescendo of the crisis."
Bear Stearns is one of the world’s biggest custodian banks, effectively a clearing and warehouse of international financial instruments, and its collapse would wreak havoc in capital markets.
James Cayne, known for his aloof management style, stepped down as chief executive of Bear Stearns at the beginning of the year.
Mr Cayne, who had been chief executive since 1993, was forced to resign after the sub-prime mortgage crisis led to the company suffering record losses.
A world-class bridge player, Mr Cayne, 74, was heavily criticised for the time he spent playing bridge and golf last year while the bank was engulfed in sub-prime turmoil. He also found himself embroiled in controversy after The Wall Street Journal alleged that he had smoked marijuana at a 2004 bridge tournament. This was a claim that he strenuously denied in an e-mail to the group’s 15,000 employees.
The cigar-smoking former scrap metal salesman, who still holds a stake of about 5 per cent in Bear Stearns, remains as chairman of the board. He has served as a director since 1985.
The New York Times had an interesting article about how the past week played out for the Wall Street firm.
You can always trust what corporate executives tell you, right?
Here's how it actually played out, day by day...
The rumors began in earnest on Monday, as whispers circulated that Bear faced a liquidity crisis linked to the still-dropping value of mortgage-backed securities an affiliate had issued. Though most of its bigger rivals have also taken write-downs related to those investments, Bear had long ago become the embodiment of the mistakes of the subprime mortgage era. Despite repeated assertions that it had enough capital, Bear-issued securities remained subject to credit rating downgrades.
The swell of rumors prompted Bear’s chief executive, Alan D. Schwartz, to issue a terse statement late that day: “Bear Stearns’ balance sheet, liquidity and capital remain strong.” But shares in the firm closed down 11 percent at $62.30.
To back up Mr. Schwartz’s statement, the Securities and Exchange Commission stepped in. The agency’s chairman, Christopher Cox, told reporters on Tuesday that the regulator was reviewing capital levels at the five big investment banks on a constant basis. “We have a good deal of comfort about the capital cushions that these firms have been on,” he said. That seemed enough to stanch the speculation: Bear’s stock rose slightly to close at $62.97.
By Wednesday, the firm took a more decisive step. Mr. Schwartz spoke with CNBC’s David Faber that morning, saying that Bear’s holding company ended last year with a $17 billion liquidity cushion, which is “virtually unchanged” so far this year. Bear’s stock dipped 2 percent to $61.58.
The situation changed by Thursday. Inchoate speculation gained tangibility as reports from the likes of the Wall Street Journal outlined potential blows to Bear’s stability. The Journal reported that several firms regarded Bear as a potentially risky counterparty, with some clients going to far as to request that Goldman Sachs, Morgan Stanley and others serve as counterparties to Bear on several transactions. And hedge funds that use Bear as a primer broker — a provider of services like clearing trades — had shifted some of their business to other shops, the Journal said.
By that point, it seemed less clear whether these investors and clients had seen proof that Bear was suffering a liquidity crisis, or were simply reacting to a growing wave of pessimism and fear. Bear’s stock closed down 7.4 percent at $57.
Whether the rumors were true had become almost irrelevant by Friday. In his statement announcing the emergency financing, Mr. Schwartz said that while his statements over the past week had been truthful, “our liquidity position in the last 24 hours had significantly deteriorated.”
Bear’s stock was down about 39 percent by noon on Friday, trading at $34.75.
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Bear Stearns, facing collapse because of the mortgage crisis,
agreed Sunday evening to be bought by JPMorgan Chase
for a bargain-basement price of less than $250 million,
the two companies announced.
The all-stock deal values Bear Stearns at about $2 a share,
based on JPMorgan's closing stock price on Friday, the
companies said.
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And what can you really say about this?
Bear Stearns Chairman Played Cards Amid Crisis
NEW YORK (Reuters) - Bear Stearns Cos Inc Chairman Jimmy Cayne was playing cards in a tournament late last week while his company's future appeared to be at risk, according a published report.
As the bank hammered out an emergency funding deal on Thursday with the Federal Reserve and JPMorgan Chase (JPM.N: Quote, Profile, Research), which resulted in Bear's shares falling by as much as half, Cayne was playing in the North American Bridge Championship in Detroit, The Wall Street Journal reported on its Web site on Friday.
Cayne, who in January stepped down as Bear Stearns' long-time chief executive, is no stranger to controversy about his hobbies. Last year he was criticized for spending too much time playing bridge and golf while Bear stumbled on wrong-way bets on subprime mortgages.
Cayne played cards last week during a period in which Bear Stearns CEO Alan Schwartz held conference calls with directors about the pending cash pledge, the newspaper said, although Cayne participated in at least some of the dialogue.
The Wall Street Journal said Cayne did not respond to a request for comment that it left at his New York office.
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April 25, 2008 CEO James Cayne has sold all of his holdings in Bear Stearns stock for $61 million
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