Wednesday, June 27, 2007

A Non-Defence of The Old Firm

by Ken Houghton

(Moved up due to addition of Part II, below)

This is the closest I'm going to come to saying anything directly about The Old Firm: If things had been done differently at the time of LTCM, we might not be talking about Bear so much right now. Via Naked Capitalism, this Bloomberg Exclusive:
Bear Stearns Cos. is getting a taste of its own medicine.

It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid.

Merrill Lynch & Co., which pumped $300 million into LTCM, said no and seized $850 million of bonds held as collateral for loans it had made to the funds. Lehman Brothers Holdings Inc., JPMorgan Chase & Co. and Cantor Fitzgerald LP also pulled out, leaving Bear Stearns to sort through the wreckage of bad bets on subprime mortgage bonds and collateralized debt obligations.

As I noted previously, there is good reason that Bear trades lower than its comps. "[T]he most sharp-elbowed culture on the Street" may be a competitive advantage, but then there are the (rare?) times when "collegial" is more important than competitive—most often, in a time of crisis.

PART 2: There was, of course, a time when Cayne thought differently, as noted in When Genius Failed:

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