There is a very critical page one story in the Wall Street Journal, “Bear CEO’s Handling of Crisis Raises Issues,”wrapped in the veneer of balanced reporting, on Bear Stern’s chief James Cayne.
Let me be clear about one thing: I am in no position to judge whether the charges made against Cayne are accurate. But the timing of the article stinks to high heaven. There is no crisis looming at Bear right now; in fact, it pulled off what many, yours truly included, thought would not be possible: it not only secured an investor, the Chinese state sponsored bank, Citic, but the terms also appear very favorable to Bear.
I have a strong suspicion that any future investments in securities firms will be on terms advantageous to the investor, which would mean Bear got a deal done at the last time when a decent deal was to be had. Admittedly, that is a function of Bear having had the first serious blow-up, but they nevertheless raised capital against the odds.
The criticism of Cayne made in the piece, in essence, is he spent too much time on the golf course and playing bridge while crises were in motion at Bear. There is also a nasty bit in the middle alleging how he smokes marijuana occasionally in his office and on the golf course. If the office bit can be corroborated, that was world class stupid, and may be what gets him in the most trouble. Regardless, its inclusion in a piece like this suggests that someone, or several someones, were out to dispense every bit of dirt on him.
And while the article, apparently deliberately, does not make the charge explicitly, it is clearly indicting Cayne of the charge that led to the exit of co-president Warren Spector of, that is, of spending too much time away from the office (in his case, at a bridge tournament) during Bear’s hedge fund crisis this June. In other words, the pot was calling the kettle black.
Thus this smells of being instigated, if not by Spector himself, then by aggrieved friends and allies. And the peculiar timing was likely a function of how long it took to do the spadework.
But is Cayne guilty of dereliction of duty? The test is whether his absences were detrimental, and it is hard, and also too early, to tell. Cayne was critical to cinching the Citic deal. So far, despite the hedge fund disaster, Bear took writedowns for its third quarter that were lower than expected, and something of a relief to analysts. They now look trivial compare to the writeoffs taken by Merrill, UBS, and Deutsche Bank. We will need to wait till the fourth quarter to see whether Bear was unduly optimistic, and does some heavy bloodletting then, or whether its risk management lapses turn out to have occurred mainly at its hedge funds after all.
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When it comes to his managerial role this « gentleman » has been quiet efficient, the bank did not sink as the funds did, the bank’s strategic vacuum has somehow been optically patched (it remains to be seen which synergies will derive out the cross shareholding with CITC) but is the story of accounts and accounting of Bear Stern over?
As I said Chez Felix, it’s not a hatchet job when the accusations are true. They range from the previously-documented (the golf and bridge) to the persistently-rumored, a.k.a. Open Secrets.
I have no doubt that you’re correct that Cayne’s foes are trying to pull an O’Neal on him. But this looks more like the NYT piece on Ross Johnson (made legendary in Barbarians at the Gate, especially the HBO version) than an Insider trying to “get even with” Cayne.
Don’t get me wrong: Felix’s idea that Jimmy C. is Bear Stearns is, I am certain, anathema to many of those who work(ed) with Ace Greenberg and/or Warren Spector. I doubt the WSJ would have trouble finding sources.
But Bear isn’t going to make the MER mistake–unless there’s an outsider who is queued up to take over, the Board may prefer an “absentee CEO.” Which will leave the non-Board shareholders wondering why they bother.
Ken,
The issue is not whether Cayne was absent or not, but whether his absence had a negative impact.
Bear is a notoriously entrepreneurial firm. That means the business leaders have to be very strong. By contrast, O’Neal was known for driving out good executives (this I heard today from someone who had an inside track to the board; he apparently was in very hot water over that in 2004).
Yes, it certainly would look better if Cayne had been more accessible. But how quickly was this crisis moving? There were some key decision points that almost assuredly required at least Spector’s blessing when he was there, and presumably Cayne’s later, such as when Bear decided auctioned some of the hedge fund assets, when they had the fights with the margin lenders that led them to set up the $3.2 billion credit facility, when they decided to let one fund fail, when they changed the leadership of the fixed income area.
But how much of substance could Cayne contribute otherwise? Unlike a lot of other businesses, the securities industry requires very deep, narrow expertise. An executive can provide balance and perspective, but he many legitimately not be a useful working oar in a crisis.
How much intelligence a bank executive can exhibit in a quick and brutal market downward adjustment?
The only expertise and foresight’s demonstration would have been, to understand the Bank’s exposure, the fundamentals and the less fundamentals key drivers (pumping markets through derivatives) and prevention the bank’s exposure. The rest of the stories are Fantasy Island,they can watch CNBC.
They still have in their books the LBO’s funding to spoil their Xmas which they did not foresee either!
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