Bear Bond Traders Odd Men Out in Merger

As it nears completion of its purchase of Bear Stearns ( BSC), JPMorgan Chase ( JPM) does not appear to be bringing over much of what gave Bear its once-great reputation: fixed-income talent.

JPMorgan said last week that it has made offers to nearly half of Bear's 13,500 employees. However, those likely to stay with the combined firm appear unlikely to include many star traders who helped build Bear's vaunted mortgage-backed securities business, among other jewels on the debt-related side of the house.

For example, Bear Stearns' leveraged finance division -- which includes high-yield bonds, leveraged loans and distressed debt -- is expected to contribute as few as two senior salesmen to JPMorgan out of an estimated 75 executives who reported to Greg Hanley, head of the division, according to people who worked in it. Hanley, who did not return calls to his mobile phone, is also not planning to join JPMorgan.

Personnel decisions are being finalized in advance of the deal's expected closing. Bear shareholders are set to meet Thursday to approve the deal.

JPMorgan CEO Jamie Dimon announced last week that employment offers were going out to 45% of Bear Stearns employees. JPMorgan is especially strong in leveraged finance and is already cutting from its own group, so it is not surprising that few Bear Stearns executives would join from that unit. Still, two out of 75 is a jarring number, probably speaking above all to the slowdown in leveraged lending across Wall Street.

Bear Stearns' collapse began last year, when two internal hedge funds trading in subprime mortgage securities and other complex debt instruments incurred heavy losses. The firm's stock price plummeted as confidence eroded. The decline culminated in March, when the 86-year-old brokerage nearly collapsed amid rumors that it was running out of cash.

JPMorgan stepped in to buy Bear for $2 a share, with heavy assistance from the Federal Reserve. The central bank pledged to backstop nearly $30 billion of the most risky of Bear's structured finance positions. An angry outcry from shareholders led JPMorgan to increase its offer to $10 a share.

Bear Stearns' prime brokerage and clearing operations were key components of the deal, and will presumably send a large number of executives to JPMorgan. Less-heralded assets, such as Bear's Houston-based energy business, also have proved surprisingly strong, said Bill Winters, co-head of investment banking at JPMorgan, in a recent conference call with investors.

While Bear's mortgage-backed securities unit was better than JPMorgan's, by many accounts, the only senior member of that group who will join JPMorgan is Mike Nierenberg. The executive is now sole head of Bear's securitized products business following the departure of co-head Bill King, who is leaving for Citadel Investment Group, as was reported Tuesday by TheStreet.com.

The former heads of Bear Stearns' fixed income division, Craig Overlander and Jeff Mayer, were originally set to join JPMorgan as vice chairmen, but then decided to leave. In so doing, Mayer turned down a contract worth $27 million, according to reports.

Tom Marano, who ran the mortgage division for Bear Stearns, has taken a position at Cerberus Capital Management, a private equity firm, as has Josh Weintraub, another high-ranking trader in the Bear mortgage unit.

Many Bear Stearns employees appear to have been unhappy with the offers extended to them and turned them down for positions at other firms, according to Bear Stearns executives. Perhaps as many as 25 Bear Stearns fixed-income executives are believed to be headed to the Royal Bank of Scotland ( RBS), which has a fixed-income operation in Greenwich, Conn.

Bear Stearns executives who turned down offers from JPMorgan will not receive severance pay, however, so those without offers to go elsewhere are likely to take whatever JPMorgan will give them.

The employment picture on Wall Street is stark, as nearly every major firm, including Merrill Lynch ( MER), Lehman Brothers ( LEH) and Citigroup ( C) is cutting back on staffing levels.

A JPMorgan source says that because JPMorgan is much larger than Bear Stearns, the expectations of some Bear Stearns executives were too high in some cases. For example, the source says one executive who oversaw all of European derivatives at Bear was given a chance to oversee a single desk at JPMorgan, though that desk had three times as many employees as the one the executive had previously overseen.

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