August 4th, 2007

WS Journal says Bear will “oust” Warren Spector, President, COO and St John’s College grad

Posted in Money by ed

Well. The Wall Street Journal is reporting that Bear Stearns will “oust” an old college friend, President and co-Chief Operating Officer Warren J. Spector, on Monday.spectordot.gif Here is another piece re same from

Tossing cannons overboard to save a leaky ship is of course routine. But it’s certainly true that every money center bank and broker is suffering with the same problems as Bear, problems based in mortgage failures and in flawed rating agency methodology re mortgage-backed bonds and other complex structured finance instruments.

The Journal reports:

QUOTE: The big securities firm also plans to oust Warren Spector, Bear’s powerful chief of stock and bond trading and one of the firm’s two presidents, according to a person familiar with the matter.

Mr. Spector, 49 years old, had been widely viewed as a leading candidate to become the firm’s next chief executive. Bear’s board is set to meet Monday …

Warren himself has been a board member since 1988. Age 30.

The firm’s “Outlook” was lowered by S&P this week (often a precursor to a Credit Rating downgrade), from Stable to Negative.

To respond, the CEO James Cayne and CFO Sam Molinaro held a conference call yesterday afternoon. But it seems Cayne left midway through, and Malinaro then fumbled a key question about the firm buying back its own stock (to stop the bleeding). In essence, he said no way, not now.

cayne.jpg Cayne, 73 years old, has commented publicly only a few times times since the crisis became public in June. And each time I’ve seen he seems to have gone out of his way to Flip’m the Bird, as it were. Maybe the Board on Monday should contemplate replacing Cayne.

In any case, it seems Bear would have done better to put Warren on yesteday’s conference call, since he is their top mortgage bond guy. Instead the presentation was bizarrely befuddled.

The stock promptly fell another five percent (down 37% from its high this year), and the markets followed. The Murdoch (formerly Dow Jones) Industrials were off 284 on the day, and are now down almost 1,000 from their all-time high at 14,121 just two weeks ago.

It was, then, a very bad Friday at the end of a bad two weeks, with a closet of shoes yet to fall. Panic is beginning to shriek.

Warren’s rise was often described as “meteoric” in the press. The MarketWatch story linked above calls him “high-flying” and “top trader.” Top Gun. And the WSJ story notes he is often named as a likely heir to the CEO chair.

Meanwhile, the firm’s other President and co-Chief Operating Officer is Alan Schwartz. Who is ten years older.

One is led then to wonder if the opportunity provided by the industry-wide crisis is not being used to arrange an eviction by people less than pleased with Warren’s press clippings.

He has a blurb on the dust jacket of the new-age business book Why Not?by Barry Nalebuff and Ian Ayres.

warrenphoto.jpg Warren wrote:

Why Not? takes RFK’s challenge to dream of things that never were and applies it to the world of business. Nalebuff and Ayres propose a handful of new and intriguing financial products, including a reinvention of the home mortgage. Financial markets are so competitive that constant innovation is required to stay on top. If their creativity tools can make it here, they can make it anywhere. Why not, indeed.

It would be a shame, then, to see Warren edged out as a result of this crisis. They are all obscenely overpaid. But someone has to run these enterprises. Much better he than a person who could think of nothing better to do with his life than major in Business Administration.

Elsewhere in the Journal: Speculation as to what banking behemoths might try to buy out the ailing Bear, the market cap of which at the current fallen levels is about $13 billion. Well within range of any number of banks worldwide. Much of the Bear stock is owned by employees, however. It is the last old famous broker not yet consumed by a wooly mammoth.

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  1. ed says:

    Alas. Ouch. The deed has been done, at a Sunday Board meeting.

    The New York Times has a very detailed story.

    There seems to have even been some national politics involved — Warren being a big fundraiser for the Dems and Cayne (the CEO) an Elephantine cigar-chomper.

    Alas. This is bad news. Corporate boardrooms need people like Warren. (Not that I’ve spoken with him in more than 20 years.)

    August 5th, 2007 at 4:25 pm

  2. ed says:

    The reactions to the news in the press and on blogs is surprisingly animated. It seems the move may be controverial and meet with disapproval in certain quarters.

    Eg The Wall Street Journal now has a detailed piece, and observes:

    Mr. Spector’s ouster may not allay [nervous investor] concerns. It leaves the company without a clear succession plan and without the services of a mortgage and trading expert.

    And from a Bloomberg story:

    … by removing Spector, management is acting as if it “didn’t know what was going on, and that is just totally unsupportable. If there is no oversight system, people should be looking at Jimmy Cayne. … The fact that this thing got away from them raises questions about controls and oversight of the firm,” Bove said.

    “The top management at Bear hasn’t really changed for a decade, and these guys have gotten comfortable in their positions.”

    I have yet to see anyone suggest the move was largely opportunistic. Everyone is reporting that it was initiated by Cayne. But if cloakroom chat preceded that …

    Well, who knows. Warren will be at large in the world, no doubt will do good things. Cayne doesn’t look so hot in his photos — perhaps being a banker all your life isn’t a bowl of cherries.

    August 5th, 2007 at 10:10 pm

  3. ed says:

    Monday morning, the move continues to draw some bad reviews. From Christopher Atayan, a venture capital guy and commentator at RealMoney:

    Bear Stearns Threw The Wrong Guy Under The Bus
    A Fish Rots From The Head
    8/6/2007 7:30 AM EDT

    Bear Stearns has always had one of the worst merger and acquistion departments among the major firms on the street.

    By that I don’t mean in number of deals or league rankings. Rather in quality of product.

    So I find it very amusing that they would promote the head of that lackluster business effort [Ed: eg, Alan Schwartz] to run the whole firm.

    I like the expression ” A Fish Rots From The Head” and I believe that the current CEO, James Cayne who has cast way too large a shadow on this firm for too long who must go.

    Of course that wont happen any time soon which of course explains why the firm saw fit to let their own name brand funds sink.

    August 6th, 2007 at 8:18 am

  4. Ken Houghton says:

    “It is the last old famous broker not yet consumed by a wooly mammoth.”

    Merrill Lynch is still independent. As is Goldman Sachs.

    August 6th, 2007 at 9:58 am

  5. ed says:

    Hello Ken Houghton,

    Thanks for commenting.

    My only reply would be that Merrill and Goldman are themselves wooly mammoths. But yes — your point being I take it that they haven’t been consumed as eg Smith Barney was by Citi.

    August 6th, 2007 at 11:37 am

  6. ed says:

    And here is Jumpin’ Jim Cramer’s comment from

    Bear Bigwig’s Departure Is Bad News

    By Jim Cramer Columnist
    8/6/2007 9:13 AM EDT

    Warren Spector, formerly of Bear Stearns (BSC), was too bullish. Period, end of story.

    When the hedge fund problems hit Bear, he was telling everyone not to worry and that the “Dumb” fund (to reuse the nomenclature from my series on Bear’s two failed hedge funds) would be worth a lot of money once the new money took off the pressure of margin calls.

    That outlook, more than anything else, explained his departure. He committed more than a billion in hard-earned Bear capital to the “Dumb” fund, and the money is lost — something I know I didn’t see happening.

    This change at the top of Bear is not good news. It shows that Bear has lost control of the situation to some degree and has put an investment banker up top of the food chain, a curious choice at best.

    Also, it causes tons of head-scratching, not just because the CFO said this is the worst market in 20 years, hardly the “business as usual” statement we expected.

    It was Spector’s ouster, which I had gotten wind of on Thursday, that shook me. This is a man at the heart of the mortgage trading business, a hard-core realist who knows his way around collateralized debt obligations (CDOs) and CDO squared and mortgage insurance and the interaction of the mortgage chain from mortgage customer to the hedge funds and European banks and insurance companies that bought this stuff.

    If he was too bullish, what the heck was everyone else?

    August 6th, 2007 at 1:05 pm

  7. JJM says:

    To follow up on the Cramer quote – I doubt a person of Mr. Spector’s experience and connections will stay unemployed for long – so what’s likely to happen to him?

    If anyone knows where the bodies are buried he does. As this unwind progresses I’d think an architect of its creation would be among those in the highest demand – yes/no?

    Hedge or even vulture fund maybe?

    I have no direct skin in the game, just curious.

    August 6th, 2007 at 2:42 pm

  8. ed says:

    I have no idea what Warren may do — I haven’t talked to him in 20 years.

    But yes, I imagine he’s already getting calls to come rescue trading desks worldwide.

    Maybe however he will do a Bill Clinton turn — and become an ambassador and agent of good works.

    But what do I know?!?

    Maybe he’ll produce my film!

    August 6th, 2007 at 3:00 pm

  9. ed says:

    Some comic relief: Must see Kevin Depew’s take at Minyanville — it’s item number 2 in the list of Five Things.

    August 6th, 2007 at 3:58 pm

  10. ed says:

    Wednesday. Wow. Grub Street ace Kevin Depew at Minyanville has been digging around this story and has come up with what may be the real goods. See item 5 in the list of Five Things. Fore!

    August 8th, 2007 at 12:19 pm

  11. ed says:

    Sunday, a week after Warren was dispatched, the Barron’s cover story is a rather rosy outlook piece on Bear Stearns.

    The piece speculates that should Bear be bought (by a money center bank in need of a big brokerage), Warren might return to run the company.  No source or rationale provided.

    (If the link above doesn’t work, try this.)

    August 12th, 2007 at 11:30 am

  12. ed says:

    On the other hand, there are many voices out there noting that two-thirds of Bear’s business and profit was at the trading desk, and Warren is credited not only with running that desk for many years, but building it. While the survivor and apparent heir apparent, Alan Schwartz, has never worked in trading.

    Thus, the buyout thesis seems hampered by the fact that Bear, a trading behemoth, has fired its great trader.

    QUOTE: As a former partner of Goldman Sachs said: “[Firing Spector] seems a strange decision as most predators would only consider an offer for Bear Stearns if Spector was a guaranteed part of the transaction.” UNQUOTE

    August 12th, 2007 at 9:06 pm

  13. ed says:

    Here is a very good piece from the Financial Times in London, re both Warren and the firm’s health going foward.

    (If the link to FT above doesn’t work, try this.

    August 12th, 2007 at 9:16 pm

  14. ed says:

    August 20 and things are hairier by the day.

    Here is another comment by Jersey Jim Cramer on the mess and Warren knee-deep amidships, in passing while painting Doom & Gloom.

    (See the quoted passage at post end.)

    August 20th, 2007 at 11:36 pm

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