Cramer: Bear Stearns' Cayne Should Go
As Bear Stearns ( BSC) CEO James Cayne's tenure reportedly goes up in smoke, investors hope the beleaguered investment bank's shares are ready to get high. Cayne is expected to
step down from the CEO post that he has held for the past 15 years and to be replaced by Bear's president, Alan Schwartz, according to The Wall Street Journal. The move, first reported late Monday by the online version of the Journal, comes after a litany of negative media reports and abysmal performance cast Cayne as a disconnected chief executive more interested in playing bridge -- and allegedly smoking marijuana, according to a Journal report in the fall -- than in running the Bear franchise.
On the heels of the management news, Bear's stock was down fractionally to $75.65 in morning trading. Cayne, who had worked at Bear since 1969, is expected to retain the chairman title -- a move that continues to upset some observers who believe that the nearly 74-year-old executive should relinquish all of his duties in order to make way for fresh talent.
"Now, to give this guy a position as chairman is another fact that this board is simply anti-shareholders," said Richard Bove, an analyst at Punk Ziegel. "Cayne's walked away with more than $100 million in shareholder equity, and the shareholders have walked away with nothing." According to the Journal's report, it was a growing contingent of shareholders that ultimately began to convince Cayne that letting go of the CEO seat now may be the best move for all parties.
"The stock's only down about almost 100 bucks this year," Chicago Asset Management portfolio manager Peter Goldman said, tongue-in-cheek, regarding the reported move at Bear. "Anything happens on your watch, and ultimately the responsibility falls on you." Although a firm that had garnered a stellar reputation of making savvy fixed-income trading moves, Cayne's Bear -- like rivals Merrill Lynch ( MER) and Citigroup ( C), both of which also shuffled CEOs last year -- has been hammered over the past year, because of poor bets related to the mortgage market. In Bear's case, the bank's first quarterly loss in its 84-year history came on the back of a pair of now-bankrupt hedge funds. "
Bear really got it in the nuts," Goldman said. The losses prompted Cayne and the executive team to forgo bonuses. Last year, Cayne pulled in about $40 million in compensation. The mounting negativity and the company's stock's inability to rebound in the new year -- even after it has closed in on completing a $1 billion investment from China-based Citic Securities -- proved too unsettling for investors, and perhaps even Cayne himself, who remains one of the larger individual owners of Bear's stock. "With your share price dropping precipitously, you've got a lot of people who have a material reduction in personal wealth," Goldman adds, "And someone has to answer for that."
Somewhere at The St. Regis or San Piedro's -- the favored restaurant digs of the Wall Street set -- former Bear Stearns Co-President Warren Spector is feeling somewhat vindicated after playing the sole scapegoat in Bear's underperformance. Still, the expected ouster of Cayne does not mean Bear is out of the woods. If troubles in credit continue to linger, the firm could struggle even under new management. Moreover, Bear maintains an international platform that is about 40% smaller than its rivals, who have managed to expand into overseas markets and diversify their business at a much more rapid clip. And a series of lawsuits surrounding hedge funds poses a continued threat to its brand name -- and a costly one at that, given the roughly $60 million spent on defense. It still remains unclear how much Cayne will be out of the picture in the chairman's seat. Despite the perception of his stepping down from the CEO spot, the executive maintains significant internal sway at the firm. Nonetheless, Chicago Asset's Goldman says that while Bear isn't a screaming buy now, the time may be getting closer to such an opportunity. "I don't think the franchise has been so tarnished that they won't be able to come back from here," he said. "I think we are getting closer to a buying opportunity."