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
Starbucks Corp. said Monday it is returning its chairman, Howard Schultz, to the chief executive's job to lead a major restructuring initiative, replacing CEO Jim Donald.
The move, coupled with plans to open new U.S. stores at a slower pace, comes as the world's largest chain of coffee houses has seen its stock plummet 50 percent over the last year amid declining traffic in its domestic stores.
Starbucks' announcement after regular markets closed sent the company's shares up $1.67, or 9 percent, in after-hours trading. The shares had gained 27 cents to $18.38 in the regular session.
Starbucks said the leadership shuffle is part of a series of other initiatives include closing U.S. stores that aren't performing well, introducing new products and store designs, and improving training for baristas.
The company said it plans to take some of the capital originally intended for U.S. store growth and use it to accelerate its international expansion.
Schultz said he is returning to the CEO role "for the long term" and that his agenda will also include streamlining the company's management.
Schultz previously served as CEO from 1987 to 2000.
Donald had been CEO since March 2005, when he was promoted from president of the company's North American division to replace Orin Smith, who retired.
Starbucks has struggled in recent months as consumers have cut back on spending amid declining home values and higher fuel prices. Meanwhile, competitors like Dunkin' Donuts and McDonald's Corp. have cut into Starbucks' customer base by launching their own lines of gourmet coffee.
The Wall Street Journal, citing internal McDonald's documents, reported Monday that the world's biggest fast food chain plans to add coffee bars with baristas serving up cappuccinos and iced coffees at its nearly 14,000 locations.
"We must address the challenges we face and know what has to be done," Schultz said in a written statement.
Some analysts have questioned whether the company has saturated certain markets as it opens an average of six stores a day.
Robert Toomey, an analyst with E.K. Riley Investments, said Schultz has his work cut out for him.
"The growth potential is less and the cache has changed to some extent -- it's more of a chain than sort of a cozy coffeehouse," Toomey said. "I think Schultz is the right person to do the job, but I think it's going to be a tough job."
In an infamous leaked memo last year, Schultz lamented that the company's aggressive growth had led to "a watering down of the Starbucks experience."
Yet Starbucks has stuck to its ambitious long-term goal of having 40,000 stores worldwide. Late last year, however it announced a slight scaling back of U.S. store openings, among other moves aimed at improving operations.
The company, which has more than 15,000 stores worldwide, said in November that it plans to open 2,500 stores this fiscal year, 1,600 of them in the United States. That's about 100 fewer U.S. stores than it originally planned.
Before Starbucks, Donald, 54, was chairman, president and CEO for Pathmark Stores Inc., a supermarket chain based in New Jersey. He has worked at other retailers, including Wal-Mart Stores Inc.
A Starbucks spokeswoman said Donald was not available for comment Monday.
Schultz, 54, joined Starbucks in 1982 as director of retail operations and marketing, then left three years later to start his own company, Il Giornale, hoping to take the Italian espresso bar mainstream in the U.S.
Il Giornale acquired Starbucks in 1987, ending the year with 17 stores. The company went public in 1992 and had nearly 300 stores by the end of the following year.
Labels: CEO, Chaiman, Howard Schultz, Starbucks
# posted by
Brian Vanderhoff @ 7:36 AM
