Bear felled, in part, by reputation

Mar. 17, 2008 (Thomson Financial delivered by Newstex) --

NEW YORK (AP) - Wall Street is unlikely to shed many tears over the swift downfall of Bear Stearns Cos. (NYSE:BSC) , a hard-nosed firm that made few friends since its founding in 1923.

Forced to seek help from the Federal Reserve and JPMorgan Chase (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) & Co. last week, the 'sharp-elbowed' firm did not come away with much: about $260 million in JPMorgan's stock, a small fraction of Bear's market value just a week ago.

Some on Wall Street regard this as just comeuppance for a firm notorious for arrogance and a penchant for making enemies.

'The feeling was this is a bit of payback coming back to a firm that seemed to be overly selfish and overly interested in their own gains,' said Michael J. Panzner, the author of 'Financial Armageddon' who has worked at HSBC and JPMorgan. 'They think nothing of knocking people out of the way to get their share of the pie.'
But just as some celebrate the virtual demise of the firm itself, many are also sparing a thought for friends who work at Bear and have just seen their investments in the company all but wiped out.

Employees own about a third of Bear Stearns, which means the company's plight has bled its roughly 14,000 workers' portfolios by $3 billion this month alone and more than $5 billion this year.

'People are pretty stunned,' said Ki Byung, who works for a division of Bear Stearns, though he has not worked there long enough to earn a stock bonus. 'People are just trying to get through the day. ... It's my first job out of school. I thought it was a big company -- it would be good experience. Now after a couple of months something like this happens.'
An employee who acquired Bear's stock anytime from the beginning of 2004 through the end of 2007 stands to lose at least 97 percent of his investment if this deal closes.

Panzner said Bear Stearns' management is likely to be fired once JPMorgan assumes control of the company next quarter. Bear Stearns' other workers will probably be treated the same as any other applicant, he said.

This bodes less favorably for some workers than others. Mike Torrens, a managing director, said his experience should benefit him should he have to seek another job.

'I've been around for 30 years,' he said outside Bear's headquarters. 'I can walk to a hedge fund.'
But the rank-and-file was not expected to be nearly so lucky.

'As for the regular Joes and Janes -- staff, secretaries, the janitor -- this deal stinks,' said Anthony Sabino, a lawyer with Sabino & Sabino and a professor at St. John's University. 'The blue-collar folks have a right to be hopping mad at the big boys for putting them in this predicament.'
The company's top people 'were cowboys who took huge risks, gambled and lost,' he said. Now, it is the shareholders who are footing the bill. Sabino said this deal is likely to end up in court.

Though Bear management has long had that maverick image, the defining blemish shaping Bear Stearns' reputation came in the late 1990s, when Wall Street's banks teamed up to bail out Long-Term Capital Management, a struggling hedge fund deemed 'too big to fail.'
About 15 banks chipped in to the bailout, including banks based in Germany, France and Switzerland. James Cayne, who stepped down as Bear Stearns' chief executive earlier this year, pledged that he would not invest a nickel in LTCM.

Peter Schiff, president of Euro Pacific Capital, said Bear Stearns clearly did not have too many friends at the Fed either. The Fed waited until after the acquisition was announced to approve new loans to banks at lower interest rates, moves he said could have forestalled Bear Stearns' bankruptcy.

Bear Stearns' sale at $2 per share is an enormous discount by any measure: The New York-based bank boasts 'book value,' or assets minus liabilities, of $84 per share, meaning JPMorgan is offering less than 3 percent of Bear Stearns' book value. The company's 47-story Madison Avenue headquarters alone may be worth many times the buyout price.

'We're really shocked,' said Ashwin Mahajam, a database manager at Bear, who has been with the company for three years.


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