Bear Stearns CEO steps down
James Cayne, who's come under attack for mismanaging the bank's investment in subprime mortgages, gives up his CEO title to investment banker Alan Schwartz.
NEW YORK (Fortune) -- Bear Stearns announced Tuesday that its chief executive James Cayne has relinquished his duties, handing over reins to investment banker Alan Schwartz effective immediately, ushering in a new era for the struggling bank.
Bear Stearns released a statement Tuesday confirming that Cayne presented his plans to the bank's board of directors, and the board accepted.
Schwartz, a primo dealmaker, is likely to try to broaden the firm's business beyond its reliance on the bond market.
Cayne's passing of the torch comes several months after two highly-leveraged Bear Stearns funds collapsed, triggering a credit crisis that has roiled the the markets ever since. Cayne has been blamed for failing to contain the damage at Bear Stearns (BSC, Fortune 500).
Bear Stearns announced on Tuesday evening that Cayne, 73, had officially stepped down as CEO that day, but would remain with the bank as chairman.
A senior Bear Stearns executive, who discussed the move briefly with Cayne on Monday, described the nearly 40-year veteran of the firm as "upbeat." Other Bear Stearns executives said that Cayne spent Monday calling colleagues with news of his plan and emphasized the "voluntary nature" of his action. It's unlikely Bear Stearns could have forced Cayne out anytime soon: He owns nearly five percent of its stock.
"I am gratified that the board has continued confidence in me, but I believe this is the right time to implement our succession plan," said Cayne in a Tuesday's statement.
Nonetheless, the heat was clearly ratcheting up on Bear Stearns' board to take more forceful action in the wake of the firm's ongoing troubles. Bear Stearns in December reported a fourth-quarter loss of $854 million, its first loss ever.
Other Wall Street boards have responded to the credit crunch - and perceptions that widespread lax management contributed to it - by ousting their chiefs. Merrill Lynch (MER, Fortune 500) replaced its CEO, Stanley O'Neal, after taking multibillion writedowns on some of its investments. Similarly, Citigroup's (C, Fortune 500) chief executive, Charles Prince, lost his job in November after the financial services giant announced as much as $11 billion in charges.
At Bear Stearns, Cayne's famously decentralized management style landed him in trouble last summer when he kept an appointment to play in a multi-day bridge tournament while its two hedge funds collapsed.
More importantly, Private Capital Management's Bruce Sherman, a respected value investor who owns 6.43 million Bear Stearns shares, had begun to make his concerns over the bank's leadership clear to its board, according to The Wall Street Journal, which first reported the management changes late Monday.
For Bear Stearns, the ascendancy of Alan Schwartz to the chief executive slot is more than a case of giving the job to the most qualified candidate; it represents a sea change in the firm's vaunted culture. Founded and run exclusively by and for its traders, Bear Stearns' efforts at corporate finance, merchant banking and advisory work - three separate businesses grouped under "investment banking" - have always been modest relative to its peers.
Schwartz, a 57 year-old dealmaker respected for his collegial demeanor, has little experience with Bear Stearns' core fixed-income franchise and virtually none with its other key business lines, back-office clearance and prime brokerage.
He is, however, as one colleague described him, "a helluva dealmaker." This is important because Bear Stearns is perpetually bandied about as a takeover target for a larger bank seeking an instant footprint on Wall Street. The rumors are certain to increase given the continued weakness in the bank's stock price, which has declined 54 percent in the last year.
In October, Bear Stearns received a $1 billion investment from an investment bank controlled by the Chinese government. To shore up their balance sheets, Merrill Lynch, Morgan Stanley (MS, Fortune 500), Citigroup, and UBS (UBS) have also received investments from so-called sovereign wealth funds.