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Bear Stearns' Biggest Loss May Be Its Reputation

If you work at Bear Stearns, don't assume the firm is safe from a takeover if its bottom line survives the collapse of two hedge funds.

Bear Stearns "may be mortally wounded" - and takeover bait - even if it avoids major financial damage from its credit hedge funds that blew up recently, says MarketWatch columnist David Weidner.

While the investment bank won't take a financial bath, "the real damage is how the firm and its management are perceived on the Street," writes Weidner, who covers Wall Street for the Dow Jones Web site.

Ever since Bear's High Grade Structured Credit Strategies Fund and High Grade Structured Credit Strategies Enhanced Leverage Fund began facing margin calls more than a month ago, the press has entertained vague speculation the bank could be a takeover target. However, two facts initially work against a takeover, according to MarketWatch. First, the firm's own financial exposure to the hedge funds appears well contained. Second, company insiders own about nine percent of Bear Stearns shares and employees own roughly another 33 percent.

In June, Bear rescued one of its troubled funds by providing a $1.6 billion credit line. That loan "is almost certain to be paid back," says Weidner. While the hedge funds' investors will be wiped out, he says Bear and the other institutions that lent to them look to come out whole.

Still, Weidner argues, less tangible factors may ultimately play a greater role in whether Bear and its very visible CEO, James Cayne, succeed in riding out the storm.

The hedge funds' collapse "may be a bigger blow to the firm's and the industry's reputation," the column says. It likens Cayne's present position to that of former Morgan Stanley chief Philip Purcell, who in 2005 was ousted along with his handpicked board after senior investment bankers inside and outside the firm waged a successful campaign to bring back former president John Mack.

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AUTHORAnonymous Insider Comment
  • Ch
    Chris Grondwalski
    27 July 2007

    I worked for Bear for almost 3 years in London trading FX options under David Schoenthal ( a person I respect as much as any person I have met in the 20 uears I have been in the financial markets), and Bernd Broker who ran the London FX division, and can say the same of him. Discrepancies can and do occur with individual employee's ethics, but I will give my personal opinion, that they have nothing to do with the way Bear Stearns conducts business, either as a Market Maker, Investment Banker, or dealings with their clients. It is second only to Chicago Research and Trading as the best firm that I have ever worked for, and for those that don't know....that is now called Bank of America. I would work for them again in a heartbeat...especially in this situation...I'm very good at putting out fires.

    Thanks David,

    Sincerely,

    Chris Grondwalski
    Email: GskiUSA@yahoo.com
    Phone: 650 921 5788

  • Ni
    Nishant Amin
    26 July 2007

    Bear Stearns = BS, lol!! if you wanna work for a real bank, try GS

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