With grief counselors on standby, shocked employees tried to comprehend how their powerful company had come tumbling down.
NEW YORK — The shouts, hoarse and high-pitched, rang out in the cavernous boardroom late Sunday at Bear Stearns’ headquarters on Madison Avenue.
Alan Schwartz, the chief executive of Bear Stearns, was briefing top executives on the deal he had just struck under duress with JPMorgan Chase and the Federal Reserve Bank of New York: Their stock in Bear was now worth $2 a share.
Just like that, $100 million stakes and more in Bear stock were largely worthless, and senior executives like Thomas Marano, the head of mortgages, and Bruce Lisman, a co-head of equities, were furious.
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Entering the weekend, Bear executives were confident the firm could be sold for several billion dollars, if not more. But $236 million — how could Bear have sold for such a price?
Why didn’t the firm seek financial help earlier, the executives asked, as they grilled Schwartz and his chief financial officer, Samuel Molinaro Jr., for answers, according to people briefed on the meeting.
For those who spent the bulk of their professional lives at Bear, the sudden collapse was unfathomable.
Employees bought stock
More so than other firms on Wall Street, Bear had encouraged its employees, from secretaries to top executives, to be long-term holders in the company’s stock, and the employees own over 30 percent of the firm.
For James Cayne, the firm’s chairman and former chief executive, holding on to his Bear stock was a point of pride, and he rarely, if ever, sold.
A billionaire just over a year ago when Bear’s stock soared past $160, his 5.8 million shares are now worth about $28 million at Monday’s closing price of $4.81.
Schwartz has 1.02 million shares, according to Bloomberg News.
Across the firm, executives and employees declined to speak publicly, a reflection of the still-fluid events as well as a reluctance to anger their prospective bosses from JPMorgan who were already on the premises Monday, eyeing their new investment.
Dismay and shock
But privately they expressed raw dismay, their voices heavy with sadness and shock.
“My life has been flushed down the drain,” said one person. There was talk Monday that with their life savings nearly depleted, some executives had moved quickly, putting their weekend homes on the market.
In an attempt to soothe jangled nerves, the firm sent an e-mail message to employees Monday assuring them Bear was still in business and that they would get their salaries — cold comfort to bankers who receive upward of 90 percent of their compensation in a year-end bonus.
Bear also told employees that grief counselors were standing by.
“The stability of your world is shattered,” said Ari Kiev, a psychiatrist who counsels financial executives.
“You are angry at the firm for failing you. But it’s more than money. It’s the shame and embarrassment. Now the question is, can you pay for the house and do you give up the second car?”
That it was Bear Stearns that failed rather than a bank like Citigroup that had much larger write-downs from the subprime crisis is largely due to Bear Stearns’ aggressive nature and its narrow focus. Many other investment banks are more diversified.
In recent years, Bear Stearns was known for its heavy presence in the mortgage-backed securities market — bonds backed by pools of home loans and sold to investors.
Profits for a while
The risks taken to turn profits at the peak of the mortgage market earlier this decade became the company’s undoing as the housing market soured.
In the hallways at Bear Stearns, there were many to blame: Jamie Dimon, chief executive at JPMorgan, whose stock rose 10 percent as the market cheered him for getting such a bargain; the Federal Reserve of New York for pushing hard for a deal; Warren Spector, the former co-president responsible for the two hedge funds that collapsed last summer; and finally Cayne and Schwartz for not having brought more capital into the firm last year.
Cayne and Schwartz declined to comment.
People who have spoken to Cayne say he is stunned by the abrupt demise of the firm, where he has worked since the late 1960s. As chairman, he was not an active participant in the negotiations over the weekend but he did come into the office, his cigar in mouth, as always.
As for Schwartz, he has told people the offer for $2 a share was the best available deal he could make that would please all the firm’s constituencies.
Bear Stearns executives were not the only big losers.
Joseph Lewis, the Bahamas-based financier, invested $1 billion at prices above $100 last year, and top institutional investors like Morgan Stanley, Legg Mason and Barrow, Hanley, Mewhinney & Strauss, a value investor in Dallas, have been recent buyers of the stock.
In an interview on CNBC on Monday, Lewis termed the offer “derisory” and indicated he would not vote for it.
It is by no means clear that a majority of Bear executives will support the deal, which raises some question as to whether the transaction will be approved by shareholders when it comes to a vote in the coming months or perhaps be modified in the meantime.
But to most Bear employees, many who face the prospect of not only losing their jobs but of a retirement without savings, such a thought is perhaps too elusive to contemplate.
“Basically we’re all wondering first, if we’ll keep our jobs, second, if we’ll get severance if we don’t,” said an investment banker on a cigarette break outside Bear’s headquarters who declined to give his name.
“And then we’re hoping that Lehman won’t go under because then there will be way too many bankers looking for jobs.”