While Bear Stearns' $2 per share deal to sell itself to JPMorgan may have given some investors like billionaire Joseph Lewis a sense of inverted sticker-shock, those who seem to be suffering most from the news of the firesale are Bear’s own employees.
Not only is their stock in Bear worth $2 dollars share, but the sudden and stunning collapse of the bank where many spent most of their professional lives produced feelings of shock, sadness and betrayal, according to The New York Times.
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 company.
Just like that, some people’s stakes of $100 million or more in Bear were ravaged, and senior executives like Thomas A. Marano, the head of mortgages, and Bruce Lisman, a co-head of equities, were furious. Entering the weekend, Bear executives felt confident that 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, they and others asked, as they grilled Bear chief Alan D. Schwartz and his chief financial officer, Samuel L. Molinaro Jr., according to The Times.
For James E. 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.
Mr. Schwartz has 1.02 million shares, according to Bloomberg News.
Across the firm, executives and employees declined to speak publicly, a reflection of the fluid events as well as a reluctance to anger their prospective bosses from JPMorgan who were already on the premises Monday, appraising their new investment.
But privately they expressed raw dismay, their voices heavy with sadness and shock.
“My life has been flushed down the drain,” one person told The Times. 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 effort to soothe jangled nerves, the firm sent an e-mail message to employees Monday assuring them that 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,” Ari Kiev, a psychiatrist who counsels financial executives, told The Times. “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?”
To be sure, there have been some Bear stock sales. Mr. Cayne’s predecessor, Alan Greenberg, has sold over $50 million worth of shares since early 2007, and Jeffrey Mayer, a top fixed income executive, sold $9 million in stock last December for $89 a share. Mr. Schwartz sold $6 million at the same time.
But for the most part, Bear executives were not big stock sellers, and their shrunken net worth has spread a viral resentment throughout the firm as employees of all ranks contemplate their reduced circumstances and search for scapegoats.
In the hallways at Bear, there were many to blame: James 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 J. Spector, the former co-president who was responsible for the two hedge funds that collapsed last summer; and finally Mr. Cayne and Mr. Schwartz, for not having brought additional capital into the firm last year.
People who have spoken to Mr. Cayne told The Times he is stunned by the abrupt demise of the firm, where he has worked since the late 1960s. Now chairman, he was not an active participant in the negotiations over the weekend but he did come into the office, cigar in mouth as always.
As for Mr. Schwartz, he has told people at Bear that the offer for $2 a share was the best available deal that he could make that would please all the firm’s constituencies.
Bear executives were not the only big losers. Mr. 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.
Mr. Lewis stands to lose as much as $1.13 billion, according to some estimates, almost half of his fortune, estimated by Forbes in 2007 to stand at around $3 billion.
Bear’s biggest investor at year-end was money manager Barrow Hanley Mewhinney & Strauss Inc., whose 9.7 percent holding has fallen by $958 million.
In an interview on CNBC on Monday, Mr. Lewis termed the offer “derisory,” and indicated that 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, declining 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.”