It took a few months, but the subprime mortgage meltdown finally claimed another victim late Tuesday when Bear Stearns bscCEO James "Jimmy" Cayne announced his retirement.
Cayne, 73, will remain non-executive chairman of the firm, in which he owns a stake of almost 5%. Bear Stearns President Alan Schwartz, 57, becomes CEO.
One of the longest-serving Wall Street CEOs, Cayne started at Bear Stearns in 1969 and became CEO in 1993. Through most of his tenure at the top, the firm thrived, and its stock price soared, from $20 in 1993 to about $172 a year ago.
Bear Stearns' main business, executing trades and handling money for big clients, produces solid, if not spectacular, gains. But in recent years, like its competitors, the firm moved aggressively into the subprime mortgage sector, where higher returns and the appearance of low risk drew investors. Last spring, two Bear Stearns hedge funds that were heavily invested in subprime-related products began sinking and, by summer, were virtually wiped out.
Since then, criticism of Cayne has grown. Investors in the two hedge funds, believing that Bear Stearns didn't adequately describe associated risks, have filed lawsuits against the firm. State regulators in Massachusetts have filed a complaint. And Bear Stearns revealed in a filing that federal prosecutors are looking into the matter.
Russell Sherman, a spokesman for Bear Stearns, says the investor lawsuits are without merit and that the firm would defend itself. As to the investigations, Sherman said Bear Stearns would not comment beyond the disclosures already made to shareholders.
Bear Stearns took its first quarterly loss as a public company last month and announced total subprime-related write-downs of $1.9 billion. Since those problems came to light last summer, the stock price has plummeted from $150 to its Tuesday close of $71.17.
Like Stan O'Neal at Merrill Lynch merand Chuck Prince at Citigroup, cCayne's position as CEO was undermined by his firm's inability to accurately gauge risks associated with the subprime market.
But the similarities between the CEO departures end there. Merrill Lynch hired an outsider, John Thain of the New York Stock Exchange, to be the firm's new CEO. Citigroup, after a longer search, settled on Vikram Pandit, a former Morgan Stanley msexecutive who'd been with the bank only since last April.
By selecting Schwartz as the new CEO, Bear Stearns is turning the firm over to a trusted insider. He joined the firm in 1976 and most recently headed its investment banking operations.
Board member Henry Bienen, president of Northwestern University, said Tuesday that the idea to step down was entirely Cayne's. "Jimmy talked about this move in December," he said.