Bear Stearns moved quickly on Friday to replace a senior executive whose unit ran two hedge funds that nearly collapsed this month because of aggressive bets on mortgage securities.
The executive, Richard Marin, was succeeded as chairman and chief executive of Bear Stearns Asset Management by Jeffrey Lane, a vice chairman at Lehman Brothers and a Wall Street veteran known for his administrative skills.
Bear Stearns said that Marin would remain as a special adviser to Lane. Through a spokesman, Marin declined to comment.
That Bear Stearns is bringing in a new leader for its asset management business, a small but fast-growing division, was not a surprise; executives inside the firm had called the near-collapse of the funds a black eye dealt to the firm's reputation for prudent risk management. What is striking is how quickly the firm moved.
In an interview early this week, the chief executive of Bear Stearns James Cayne described the hedge funds' problem as a "body blow of massive proportions."
Lane, who was approached about the job earlier this week by Warren Spector, a president and cochief operating officer at Bear, knows his new colleagues well. Neuberger Berman, an asset management firm that Lane previously led, held merger talks with Bear Stearns before it was eventually acquired by Lehman Brothers in 2003.
Shares of Bear Stearns, which until recently had performed better than those of other investment banks, have fallen 6.7 percent in the last two weeks. They closed down 2.8 percent, or US$4, to US$140 on Friday.
In addition to Marin, questions have arisen about Ralph Cioffi, the manager of the two hedge funds that had borrowed more than US$10 billion to invest in complex securities that trade infrequently and are hard to value.
In a telephone interview on Friday, Lane said that Cioffi was still with the firm and working with Thomas Marano, the head of the firm's mortgage business and a respected trader, to help unwind the two funds in an orderly manner.
"Everybody is an employee at will," Lane said, "and there is never too much talent at the company."
The Securities and Exchange Commission has also started an informal inquiry into issues surrounding the Bear hedge funds and how the industry is valuing mortgage-related securities like those that Bear holds.
Though Bear and its executives had only invested US$40 million of their own money in the fund, the firm was compelled to initially pledge a US$3.2-billion credit line to rescue the older of the two funds when lenders demanded more collateral to secure their loans. The bank later reduced that amount to US$1.6 billion.
Investors had also sought to redeem their stakes in the fund, but they have been unable to do so since May.
Friday's announcement came a day after reports that Marin maintained a personal blog, on which he described the efforts to save the two funds, which had borrowed billions of dollars from other investment banks, as "trying to defend Sparta against the Persian hordes of Wall Street."
Lane, 65, a native of Brooklyn, New York, worked his way up on Wall Street, holding several administrative and managerial roles. Under his leadership, Neuberger, which for most of its history was a private partnership known for its mutual funds, went public and sold itself for US$2.6 billion to Lehman Brothers.
Some analysts said on Friday that Lane would bring a steady hand to Bear Stearns Asset Management, which had set an aggressive goal to account for 10 percent of the firm's revenue by 2010.
But Lane, who for the last four years has not been involved in day-to-day management of a business at Lehman, said he was not interested in baby-sitting a child suffering from growing pains. He said he expected to expand the business through acquisitions.
"I don't think anybody here is interested in retreating," he said. "From adversity comes opportunity. This is a great franchise, and we are going to move forward."
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