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Bear Stearns' Cayne Was Near Death in Sept: Report

Former Bear Stearns Chief Executive James Cayne came close to dying last September from sepsis triggered by a severe prostate infection, Fortune Magazine reports Monday on its website.

James Cayne
AP
James Cayne

And though he survived his own brush with death, the veteran trader admitted he did not know how to save his 85-year-old firm, which collapsed six months later as Bear was unable to navigate the credit crisis that ultimately sparked a run on Bear by clients and investors.

"The options were limited," Cayne told Fortune in its Aug. 18 edition.

Bear posted its first-ever quarterly loss in December, shortly after his return from the hospital.

"When you become roadkill, when you happen to have lost some weight and you're not really healthy, but you know one thing -- you know that you have worked your ass off and you're not smart enough to know the answer -- that's tough," he said.

In Cayne's first interview since Bear was forced into a fire-sale takeover by JPMorgan Chase , he told Fortune he woke up on Sept. 11 drowsy, weak and with dangerously low blood pressure.

He rushed to a Manhattan hospital with sepsis so severe that doctors gave him a 50-50 chance of survival.

Though he remained in the hospital for 10 days and lost 30 pounds, Cayne and Bear never notified the public.

He took a car service instead of calling for an ambulance to ensure his hospital visit didn't become public, Fortune said.

Cayne and Bear were under the gun last year as investors worried the Wall Street firm had excessive exposure to mortgage markets laid low by a slump in U.S. real estate.

Its stock began to fall sharply in June 2007, when two of its highly leveraged mortgage funds collapsed.

Six months after his hospitalization, Bear Stearns itself succumbed as market panic sparked a run that drained all of Bear's cash in days.

Cayne's reputation was tarnished as he was portrayed as a Nero fiddling around golf courses and playing cards even as the firm with 14,000 employees burned.

Couldn't Stop the Fall

Cayne first realized the firm faced trouble shortly before June 22 when it offered to bail out its two subprime mortgage funds.

Cayne, whose hands-off management style gave subordinates such as co-President Warren Spector free rein to run the business, in August forced out his potential successor and began hunting for capital.

Cayne secretly made several trips to China to strike a cross-investment deal with China's state-controlled CITIC Securities.

He convinced investor Joe Lewis in September to buy a stake, a $1 billion bet that would be wiped out within months.

When Cayne returned from his hospital stay, Bear was vulnerable.

Talks to sell equity to KKR, Fortress Investment Group, JC Flowers and other firms fell through.

Finally the bank's woes, combined with stories that Cayne was frequently out on golf and bridge outings, caught up with him.

Cayne was forced to relinquish his CEO role in January, but remained chairman.

"I didn't stop it," Cayne acknowledged, speaking of his role in the firm's demise. "I didn't rein in the leverage."

Fortune observed the firm left itself vulnerable because it relied too heavily on overnight "repo" financing from banks and funds.

In the firm's final days, Cayne said he was in the dark about Bear's weakened state.

Bear Stearns
Jin Lee
Bear Stearns

He was playing at a Detroit bridge tournament when trading clients began fleeing in March and did not know the depth of the firm's cash crisis until March 13.

It wasn't until he returned to Bear's New York offices on March 15 that he learned the Federal Reserve had arranged a bailout and that JPMorgan was its only savior.

Cayne resigned himself to JPMorgan's offer of $2 a share.

"I felt nothing," he said of the sale that cost him $1 billion, leaving his net worth at about $600 million.

"You got a bad grade on your test. That's it. No appeal. I felt sad for me and sad for my Bear Stearns family."