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Bear Chairman Apologizes For the Bank's Collapse

CNBC.com With Wires
Thursday, 29 May 2008 | 1:21 PM ET

Bear Stearns Chairman James Cayne told employees and shareholders he was sorry for the demise of the 85-year-old investment bank, as shareholders voted Thursday to sell the company to JPMorgan Chase for less than $10 a share.

In a five-minute meeting at Bear's Manhattan headquarters, Cayne apologized and said a "hurricane" in the markets brought down the bank, according to attendees.

James Cayne
AP
James Cayne

Members of the press were excluded from a session that attracted roughly 400 shareholders, many of them employees whose personal wealth was gutted by the collapse of Bear's stock price.

"I personally apologize," Cayne said, according to shareholders who attended the meeting.

"Words can't describe the feelings that I feel." Cayne, known for his gruff style, surprised many in the audience when he expressed regret.

Several shareholders said Cayne, who is 74, appeared thin and drawn.

'The Place Got Quiet'

One Bear Stearns executive who got a pink slip last week but attended the meeting today told CNBC that the mood was especially somber.

"The whole tone of the meeting was sad," the exec said. "When Cayne spoke and read his statement, the place got quiet. No one said a word. No emotion."

"After the meeting, people were definitely upset," the exec continued. "There was a lot of hugging. All you heard people saying was, 'Life goes on.'"

A spokesman for JPMorgan Chase told Reuters after the meeting the $1.5 billion deal would be completed Friday, well ahead of earlier forecasts.

JPMorgan, which has amassed just under 50 percent of Bear stock, said about 84 percent of the shares voted approved the merger.

Under the terms of the deal, Bear stockholders will receive 0.21753 share of JPMorgan stock, which, based on Wednesday's closing price, values Bear at $9.32 a share.

Tough Choice

Employees and shareholders, who saw the price of their shares plummet from a record high of $173 in January 2007 and $55 as recently in March, essentially were forced to choose between a fire-sale or bankruptcy.

Approval was all but guaranteed, since JPMorgan struck a deal with Bear in March to acquire more than 49 percent of its shares in exchange for raising its bid to $10 from $2 a share and revising the term of a loan guarantee agreement.

Bear Stearns: Done Deal
Shareholders approve the acquisition by JPMorgan, with CNBC's Mary Thompson & Bill Seidman

In mid-March, a Bear weakened by its exposure to mortgage securities and the embarrassing collapse of two mortgage hedge funds was slammed by market speculation it was struggling, which sparked a run on the bank.

By March 14, Bear was running out of cash and forced to seek a bailout from the Federal Reserve through JPMorgan.

In related news, the Federal Reserve Bank of New York said it would complete a previously announced sale of $30 billion of Bear Stearns assets to the Fed around June 26.

Previously, the sale, designed to reduce JPMorgan's exposure to distressed and hard-to-sell assets, was to be completed at the same time the merger was closed.

"The additional time will help ensure the smooth transfer of this large portfolio," JPMorgan said.

Attendees Thursday described a muted event marked by regret and frustration.

No one posed questions or expressed anger to Cayne or Chief Executive Alan Schwartz, who during the past six months presided over the bank's demise.

'We'll Get Through It'

"It's a sad day, but we'll get through it," Schwartz said in brief remarks, according to attendees who spoke to Reuters.

"We ran into a hurricane." Schwartz is expected to be offered a job as a senior deal maker at JPMorgan, although more than 55 percent of Bear's nearly 14,000 employees have lost their jobs.

Bear's executives did not take responsibility for the events that first weakened and then led to the firm's sudden collapse in March, when investors and trading partners withdrew their business and their cash from a bank heavily exposed to the U.S. mortgage crisis.

Cayne, slammed in the press for fleeing the office early to play golf, competing in bridge tournaments and allegedly smoking marijuana during critical moments of the bank's struggles, said these news accounts were inaccurate.

"Don't believe what you read in the press," he said. "It isn't even close."

Even so, many Bear employees were quietly seething about the bank's rapid demise, which wiped out the life savings of many bankers and traders who had been urged to keep their bonuses invested in Bear stock.

Employees declined to give their names because they are not authorized to speak publicly about the bank and feared their employment or severance agreements would be jeopardized.

"They should be ashamed to fly the flag," said Wayne Kinaper, a shareholder and Korean War veteran, pointing to a large American flag in Bear's lobby.

--On-Air Editor Charlie Gasparino contributed to this report.

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