GO
Loading...

Bear Stearns CEO: Firm Would Consider Selling Stake

Bear Stearns, hammered by market turmoil this summer, would consider selling a stake to an investor from China or the Middle East if the deal created value, Chief Executive James Cayne said Thursday.

"We're not looking for an equity infusion," Cayne said during a presentation to analysts. "If something comes along where a potential partner or somebody who brings geographical strategic value to us, and has as a condition participation in ownership in (Bear), we will certainly look at that."

Cayne's comments came amid weeks of speculation that the firm, humbled by two collapsed hedge funds and losses in its flagship mortgage business, needed a cash infusion.

Yet Cayne and his top lieutenants insisted that Bear remains in a good position to profit from a number of debt and equities opportunities, especially outside the United States.

Markets will improve, the executives said, though analysts say Wall Street's No. 5 brokerage still faces a tough road.

"Its personnel, capital and products are capable of being deployed to generate future growth," Punk Ziegel analyst Richard Bove said. "However, the markets the company faces may take time to recover."

Bear's stock fell as much as 1.7 percent Thursday as executives struck a cautious tone when acknowledging that any rebound from the summer's turmoil is at a very early stage.

Bear still derives more of its earnings from U.S. fixed income businesses than rivals. While all Wall Street firms were challenged in the third quarter, Bear's earnings fell 61 percent and its return on equity was the lowest.

Hard Road for Revenue Growth?

Tripped Up

Indeed, Bear is boosting stock buybacks and shedding assets, suggesting the firm expects revenue growth to be challenging.

Chief Financial Officer Sam Molinaro said Bear will pare down its balance sheet, in tune with shrinking markets for mortgages, collateralized debt obligations and other fixed income businesses.

The firm is looking to slash costs. Bear has reduced its mortgage origination staff by 40 percent this year, with 310 more jobs cut this week, amid signs the mortgage crisis isn't over.

Molinaro said Bear is prepared to cut more jobs to reflect market conditions. Morgan Stanley , Lehman Brothers Holdings Inc and other Wall Street firms together have already cut tens of thousands of jobs so far this year.

Bear executives tried to reassure investors that a firm written off by many investors -- its shares having lost more than one-fifth of their value this year -- is still in good shape.

The firm is seeing more investors return to the financial markets, President Alan Schwartz said.

"Right now the anticipation in the market is for things to ease, which is taking some of the fear out of the market and letting things flow a little bit better," Schwartz said.

Smaller Buyouts

Bear's struggles led to the ouster of co-president, Warren Spector, who became the highest ranking Wall Street executive to lose his job as a result of this summer's crunch.

The New York-based firm said it sees opportunities in restructuring assets hit by the credit turmoil, including investments in distressed mortgages.

Schwartz said the outlook for investment banking remained strong, sustained by more deals between companies. That, and a steady supply of smaller buyouts, would compensate for the absence of highly leveraged mega-deals.

Bear also stressed its plans for international expansion.

Schwartz said Bear would pursue an "asset light" approach, delivering capital markets services to clients on a "wholesale" basis without having to open up offices in every market.

Equities trading and prime brokerage are also growth areas, as are structured products, risk arbitrage and energy trading, he added. Bear, for example, intends to replicate its U.S. electricity-trading business in Europe.

Bear's struggles this summer had fueled speculation that hedge fund clients would abandon the bank's prime brokerage business. But Cayne himself has devoted much of his time meeting prime broker clients to convince them to stay.

One potential bright spot is the asset management business, where Bear wants to build up its private wealth-management business and is considering acquisitions to accelerate expansion.

That said, newly hired asset management head Jeff Lane expects Bear will lose nearly a fifth of its managed assets as star money manager James O'Shaughnessy departs to form his own firm. Bear's stake in O'Shaughnessy Asset Management will ease the financial impact of the lost assets, Lane said.

Banks