Indiscrete
On the positive side, the bank did not have the larger-than-life characters like Jack Grubman, the telecommunications analyst at Salomon Smith Barney, or Frank Quattrone of Credit Suisse First Boston, who attracted the eyes of the regulators.
For a firm that had been investigated by the Securities and Exchange Commission for having done back office work for some notorious bucket shop brokerage houses in the mid-1990s, being out of the scandal spotlight was a nice change for bank executives.
As has been the case throughout its history, Bear Stearns' top officials have not been shy in rewarding themselves for a job well done. Last year, Cayne took home US$18 million in compensation -- US$10 million of it in cash -- more than any other Wall Street chief. His co-presidents, Alan D. Schwartz and Warren J. Spector, made US$17 million each.
Cayne makes no apologies for the pay scale. "This is not an ordinary business," he said. "My father was a patent attorney, and he never made more than 75 grand in his whole life. But if I don't pay my guy US$1 million, nine of my competitors are willing to pay him four times that."
Who's laughing now?
Bear Stearns' time in the wilderness during the bull market was a frustrating period for the company's top management: the stock price suffered compared to those of their peers and a number of high-level bankers defected, seduced by piles of money from competing firms.
Although Bear Stearns has been a public company since 1985, it is still run very much like a partnership. The executive committee, which includes Cayne, Spector, Schwartz and Alan C. Greenberg, the firm's previous chairman and chief executive officer, meets every Monday to discuss strategic issues.
For much of 1999 and 2000, Bear Stearns executives debated various solutions that would enable them to compete more effectively. The firm inaugurated a stock options plan, to provide more financial lure for its midlevel bankers. It also initiated a somewhat frantic expansion of the European business.
But as the markets soared, the firm seemed in danger of being left behind.
Cayne, Schwartz and Spector, who together own more than US$700 million in stock, began to discuss the possibility of finding a suitor for Bear, say a number of former Bear Stearns bankers who were privy to these discussions.
When Donald B. Marron, the chief executive of PaineWebber, sold out to Union Bank of Switzerland for US$12 billion in 2000, that was the last straw for Cayne, say the bankers. Cayne, with his top executives, began to entertain offers more enthusiastically. Schwartz traveled to Europe and met with a number of banks. Cayne said publicly that he might consider a sale.
Neither an appropriate buyer nor price materialized. Instead, bank management took a different tack: Unable to find a match and unwilling to spend the vast sums to compete in the market bubble, Bear Stearns retrenched. Expenses were slashed, and the firm laid off close to 1,300 employees, becoming one of the first Wall Street firms to cut back on staff.
The timing was perfect. As the stock market crashed, interest rates continued to sink, and investors pulled out of the stock market and plowed their money into Treasury bonds and real estate. Bear Stearns' core mortgage businesses thrived, and the firm's absence from the elite group of stock underwriters was no longer a problem.
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