Bear Stearns CEO to retire following subprime woes

NEW YORK -- 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.