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.