Bull market for Bear traders

(Fortune) -- Last month's near collapse of Bear Stearns hasn't reduced demand for the firm's top traders and salesmen in the mortgage-backed-securities business they once dominated.

Goldman Sachs (GS, Fortune 500) happily snapped up Bear (BSC, Fortune 500) mortgage derivatives trading veteran Peeyush Misra and several of his colleagues, according to a colleague and senior Bear executive. The expectation is that Misra will be a nice profit center for trading-oriented Goldman, given his annual production of between $50 million and $100 million in revenue for Bear. Goldman, which declined to comment, is also said to be close to finalizing hiring details for several former Bear salesman.

Meanwhile RBS Greenwich is said to be in the final stages of hiring several traders from Bear's former so-called private-label mortgage group, which focused on trading mortgage bonds that aren't guaranteed by either Freddie Mac (FRE, Fortune 500) or Fannie Mae (FNM). Those hires would include the head of the group, Josh Weintraub. RBS didn't return a call seeking comment.

And after 25 years at the firm, Bear mortgage chief Tom Marano - the firm's most high-profile Grateful Dead aficionado - is expected to land a role at a money management shop.

The departures deprive JPMorgan Chase (JPM, Fortune 500) of some formidable earning power. The bank agreed last month to buy Bear Stearns at the prompting of the Federal Reserve Bank of New York. The decision by traders such as Misra to jump shows that many top Bear Stearns mortgage players are walking away from JPMorgan's conservative commercial banking culture in favor of firms with a more risk-oriented trading ethos.

But JPMorgan, which also declined to comment, isn't letting all of Bear's former mortgage executives walk away. Former mortgage trading chief Michael Nierenberg is slotted to be the new co-head of JPMorgan's mortgage group, sharing duties with Bill King. Also assuming roles at JPMorgan are former Bear Stearns fixed-income chiefs Craig Overlander and Jeffrey Mayer, who will now become vice-chairmen of the investment bank.

The stakes in getting some of Bear's trading alumni are high because the unit regularly raked in up to $2 billion in annual revenue, according to a senior executive at the firm. The unit's profit margins were between 7% and 8%. In 2006, prior to the collapse of the mortgage market, the mortgage group accounted for over 12% of the firm's revenue and 7% of its net income.

The Bear mortgage group's disproportionate impact on the firm's bottom line was an obvious double edged sword. The mortgage desk provided billions of dollars in revenue in good times, as well as plenty of business for other trading desks. Even when the tide turned, the group continued to have its successes: The mortgage unit put on a series of so-called catastrophe trades, or bets on a global financial collapse, in the fourth quarter last year that netted the firm nearly $200 million.

But once the credit bubble popped last summer, a steep decline in the mortgage business added to the worries about Bear's health. It was in part because of Bear's dependence on mortgage-related profits that the firm endured two rounds of liquidity-related problems before being sold to JPMorgan for just a fraction of its year-end book value. That deal nearly wiped out equity investors and saddled big Bear Stearns shareholders such as former CEO Jimmy Cayne with hundreds of millions of dollars in losses on their holdings.

But, as the hiring talk at Goldman and RBS shows, at least some of Bear's top players will soon have a chance to make up those losses.