Cayne bows out of Bear Stearns

James Cayne, chairman and chief executive of Bear Stearns, is the latest bank executive to lose his job as a result of large quarterly losses, according to news reports. The firm’s president, Alan Schwartz, who has been with the firm since 1976, is expected to take his place as chief executive. Cayne will remain as non-executive chairman.

Bear Stearns’ reputation as a powerhouse among fixed-income dealers has been badly bruised as the value of its collateralised debt obligation and mortgage-backed securities (MBS) with subprime exposure has continued to tumble.

On November 30, the firm reported its first quarterly loss in the firm’s history, writing down $1.9 billion – $600 million more than it expected at the beginning of the month. In July, the firm shut the doors of two internal hedge funds – Bear Stearns Asset Management’s High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund – which at one point controlled over $900 million in aggregate assets under management. This occurred despite a $1.6 billion cash injection in June.

The price of Bear Stearns shares dropped after Cayne’s removal was first reported in the Wall Street Journal, with mid-day, intra-day composite trading at $75.08, down from the closing price of $76.25 the previous day. On January 3, 2006, the firm's shares traded at $161.39.

Brad Hintz, a New York-based senior analyst at Bernstein Research, believes the change in guard will not shield the firm from challenges. “The bond market has changed - unlike other fixed-income cycles, a booming MBS recovery is unlikely to occur in 2008-2009,” he said. “The expected decline in 2008 MBS, combined with the shift of the mortgage market away from higher-margin non-conforming and toward low-margin agency MBS, makes the outlook for Bear Stearn's 2008 fixed-income earnings challenging.”

See also: Write-downs mount in run-up to Christmas
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