CNBC Exclusive: Bear Stearns Had to Quell Rumors of Crisis
Bear Stearnsarranged a conference call with Wall Street analysts last Friday to quell speculation that the firm was suffering from a liquidity crisis that threatened its existence, the company's CEO James Cayne said in an exclusive interview with CNBC.
During a two-hour interview, Cayne said he was concerned about two rumors that were sweeping the markets that called into question Bear's ability to meet its obligations with investors and traders. First, that the Federal Reserve had contacted Bear to help it deal with a pending liquidity crisis, and second that the top Wall Street firms were meeting to help Bear deal with its funding problems.
"Both were false," Cayne said in an interview. "The Fed never called us, and I checked with several CEOs who said no such meetings was taking place."
Cayne, however, worried that the fear that Bear might not have funding on hand to complete trades --a financial term known as liquidity--might prevent other firms from trading with the firm, or force banks to pull their lines of credit and other funding mechanisms. Such an occurrence is known on Wall Street as a "run on the bank," and it could have effectively put Bear out of business.
As a result, Cayne said the firm held a conference call on Friday to alert the markets that it has ample liquidity and funding to weather the storm in the markets, particularly the bond markets where Bear makes much of its profits.
Cayne also said he plans to meet with Chuck Prince, head of the biggest bank Citigroup, as part of the ongoing effort to convince the markets that Bear is in sound financial shape and able to borrow or tap lines of credit to meet its needs.
People at Bear Stearns say the next 72 hours are critical. The firm needs the confidence of the Street to continue its business.
Cayne, meanwhile addressed several other issues involving the firm's recent problems, which have sent shares of the firm skidding to their lowest level in years. He said he dismissed Warren Specter, his No. 2 executive, who had direct oversight of the firm's bond department and asset management business, because he "lost confidence" in Specter's ability to run the operations after the implosion of two subprime hedge funds.
An internal investigation headed by an outside attorney, former Whitewater prosecutor Robert Fiske, found preliminarily problems with risk control in those subprime hedge funds. Spector had prime responsibility, so the axe fell on him.
Cayne also said he has no intention of stepping down as CEO of Bear Stearns, despite widespread rumors that he may be out by the end of the year. "Tell the people who say I'm going that in 2018 I'll be calling it a day."
Cayne also said he has no intentions of selling the company despite growing speculation that Bear is now a takeover candidate because of its falling share price. "I'm inclined to remain independent," he said.