Finance · Profile from Finance Research Companion
The Bear Stearns Companies Inc.
The scrappy, trading-first Wall Street firm founded in 1923 that prided itself on hiring "PSDs" (poor, smart and with a deep desire to get rich), refused to join the 1998 rescue of Long-Term Capital Management, built one of the largest mortgage-securities machines of the 2000s, and in March 2008 became the first major casualty of the global financial crisis. Two of its in-house hedge funds collapsed in the summer of 2007; eight months later a run by its repo lenders and prime brokerage clients drained its cash in four days, and it was sold to JPMorgan Chase over a weekend for $2 a share (raised to $10), with ~$30bn of New York Fed financing through Maiden Lane LLC. It was the first time since the 1930s that the Federal Reserve had used its emergency powers to rescue a firm that was not a commercial bank.
At a glance
- Founded
- May 1, 1923, New York, by Joseph Ainslie Bear, Robert B. Stearns and Harold C. Mayer, with ~$500,000 of capital (company history, reported)
- Headquarters
- 383 Madison Avenue, New York (from 2001–02)
- Ownership / structure
- Partnership until its IPO in October 1985; then public (NYSE: BSC) until acquired by JPMorgan Chase on May 30, 2008; employees owned roughly a third of the shares (reported)
- Last leadership
- Alan Schwartz, CEO (January–May 2008); James "Jimmy" Cayne, chairman (CEO 1993–January 2008); Alan "Ace" Greenberg, chairman of the executive committee (CEO 1978–1993)
- Segment
- Investment bank and broker-dealer: fixed income (especially mortgages), equities, clearing and prime brokerage, investment banking, asset management (Bear Stearns Asset Management) and private client brokerage
- Scale at peak
- Total assets ~$395bn and shareholders' equity ~$11.8bn at November 30, 2007 (fiscal year-end), gross leverage ~33x (10-K, reported); ~14,000–15,000 employees (reported, verify); 2006 net income ~$2.1bn on ~$9.2bn of net revenues (reported, verify)
- Market value
- Shares peaked at ~$172 in January 2007 (market value ~$20bn, reported); JPMorgan's final price of $10 a share valued the company at ~$1.2bn (reported)
- Signature moves (incl. failures)
- Founding and surviving the 1929 crash; the 1985 IPO and Greenberg's cost culture; the Cayne era's clearing and prime brokerage franchise; refusing to join the 1998 LTCM bailout; the vertically integrated mortgage machine (2000s); the collapse of two BSAM hedge funds (2007); the March 2008 run and JPMorgan rescue; Maiden Lane, litigation and aftermath (2008–2013)
8 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
1923
Founding and Surviving the Crash
Founding
1985
IPO and the Greenberg Culture
IPO
1993
Cayne Era Clearing and Prime Brokerage
Leadership change / launch (scaling a clearing and prime brokerage franchise)
1998
Refusing the LTCM Bailout
Crisis decision (declining to join a Fed-brokered private rescue)
2003
Vertically Integrated Mortgage Machine
Pivot / acquisition (vertical integration into mortgage origination, servicing and securitisation)
2007
Hedge Fund Collapse
Failure (affiliated hedge fund collapse)
2008
March Run and JPMorgan Rescue
Failure / acquisition / bailout (Fed-assisted sale)
2012
Maiden Lane Litigation and Aftermath
Resolution / litigation