The collapse of the subprime mortgage market and ensuing credit crisis have claimed their latest casualty: the longest serving chief executive at any of the big Wall Street investment banks.
Bear Stearns Cos. Chief Executive James "Jimmy" Cayne said Tuesday that he's stepping down, not long after Merrill Lynch & Co. CEO Stan O'Neal and Citigroup Inc.'s Chuck Prince were ousted.
Cayne, 73, led Bear Stearns to its only quarterly loss since being founded in 1923 as the collapse of the subprime mortgage market has forced global banks to write down $105 billion worth of investments.
He will serve as non-executive chairman of the New York-based company and will be succeeded as CEO by President Alan Schwartz, effective immediately.
"We have been through some challenging times in the past few months, but I am confident the difficulties are temporary," Cayne said in a memo to staff. "I am equally confident that Alan will lead Bear Stearns to new levels of success and prestige."
Cayne added that his new role as non-executive chairman will be as an "advisory capacity" to Schwartz, and he is no longer an employee of Bear Stearns. The memo did not state when Cayne might give up the chairman position.
Bear Stearns' lead independent director, Vincent Tese, said it was Cayne's decision to step down. "We are very pleased that he has agreed to stay actively involved in the business as chairman of the board," Tese said in a written statement.
A Bear Stearns spokesman declined to comment.
Cayne, who became CEO in 1993, had been under pressure since the summer when two hedge funds managed by Bear Stearns collapsed. Since then, he has been the target of criticism for playing golf and bridge while the company's key fixed-income business suffered heavy losses.
Bear Stearns shares have lost more than half their value in the past year, more than any other Wall Street investment bank. The stock fell $5.08, or 6.7 percent, to $71.17 Tuesday.
Analysts believe the change in leadership is a first step in Bear Stearns becoming a more diversified company.
"He was the architect of what now appears to have been a failed business strategy," said Punk Ziegel & Co. analyst Richard X. Bove. "Under his tutelage, the firm, focused its efforts too heavily on the mortgage and credit derivatives markets."
Schwartz said Bear Stearns has been attempting to expand the investment house into more lucrative areas, though admitted there are still challenges ahead as he takes over the reigns this year.
"Although the operating environment has been difficult, we are off to a good start in 2008," he said in a written statement. "We remain excited about our core equity, banking and fixed income businesses, our international expansion initiatives, and the further development of our energy and wealth management platforms."
With growing calls for his ouster, Cayne did take steps to maintain control of the company he joined in 1969. He ousted his co-president, Warren Spector, after the two hedge funds collapsed and later forced out the manager of the two hedge funds amid probes by the Securities and Exchange Commission and U.S. attorney's office.
In October, Cayne organized a $1 billion investment by China's government-controlled Citic Securities Co. for a 6 percent stake. He alone owns about 4.9 percent of Bear Stearns shares, making him the second-largest individual investor after billionaire Joseph Lewis, according to regulatory filings.
Cayne also said last month that he and other top leaders gave up their bonuses for 2007 after Bear Stearns took a $1.9 billion writedown and posted an $859 million loss in the fourth quarter. Rivals Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. all were able to offset fixed-income losses to post a profit during the quarter.
Both Cayne and Schwartz rose through the ranks of Bear Stearns during the past three decades, both considered up-and-coming leaders by longtime chairman and CEO Alan "Ace" Greenberg.
Cayne was hired by Greenberg as a stock broker when the two met during a bridge tournament in 1969. He went on to become president in 1985 and then took over for Greenberg as CEO eight years later. He became chairman in 2001.
Meanwhile, Schwartz caught the attention of Greenberg after starting off at Bear Stearns' Dallas office in 1976 as an institutional stock salesman. He was a star pitcher for Duke University in the 1970s and was drafted by the Cincinnati Reds but never played an inning because of an elbow injury.
Schwartz was head of research and developed the firm's corporate finance business. As an investment banker in the 1990s, he was said to be a close adviser of top executives that included Walt Disney Co.'s Michael Eisner.
Labels: Bear Stearns, CEO, Jimmy Cayne, Mortgage, Mortgage Rates
# posted by
Brian Vanderhoff @ 10:10 AM
