Saturday, August 04, 2007

Stick a Fork in it?

by Ken Houghton

It's been less than 36 hours since this post, but it already seems outdated. In the sense that it was too optimistic.

We don't have the volume on the television at work, so all I knew about the conference call was Sam Molinaro's declaration that the fixed income credit market was the worst he had seen in 22 years.

The real news was here:
[Jimmy Cayne] then turned the floor over to Molinaro -- and wasn't heard from again. At one point, an analyst asked whether this year's 33% drop in Bear Stearns shares made for an opportunity to buy back stock.

"I think this one might be for Jimmy," the analyst said, before going on to explain why the circumstances might justify a buyback.

There was silence on the other end of the line as it emerged that Jimmy wasn't there. Molinaro then took the question, saying Bear is focused now on making sure it has "ample liquidity."

The optimistic English translation of that is, "We're not quite dead meat, but take precautions and don't even think about anything less than medium well."

And the article ends on a sad note:
But fixed income and mortgage securities are the center of this crisis, and they're Bear's wheelhouse. So investors could be forgiven for expecting a bit more guidance, and at the very least some more attentiveness, from Cayne -- who is one of the firm's biggest shareholders....

We can only hope he didn't ditch the call for a no-trump hand of bridge with Bear Stearns president Warren Spector.

Make that ex-President, possibly:
Mortgage-bond trading powerhouse Bear Stearns has taken some emergency measures to right its listing ship, dismissing President and Co-Chief Operating Officer Warren Spector and beginning a dialogue with regulators and Treasury officials over its financial health, The [New York] Post has learned.

Warren Spector was conspicuous among upper management as not having a major investment in the first two hedge funds. He has also been primarily responsible for the expansion of the fixed-income and MBS business and the expansion and improvements in their risk management techniques and ability over the past 15 years.*

The WSJ (via the NYT) indicates it may not be a done deal yet:
Bear Stearns' board is due to meet on Monday to consider the departure of Spector, who heads up its stock and bond trading operations, the paper said, citing a person familiar with the situation.

So Reason may prevail. Otherwise, the Book Value for the firm right now is probably the equivalent of "What will someone pay for Warren Spector's autobiography? (And where do I go to apply for the ghostwriting job?)"

Also, especially for the benefit of Mish and his readers, I can't resist quoting this from Bear's Press Release Friday morning in response to S&P downgrading their outlook on the company:
All other major rating agencies have affirmed their stable or positive outlook on Bear Stearns within the last six weeks.

Fortunately, there is nothing forward-looking in that statement.

UPDATE: Yves Smith at Naked Capitalism sums up my qualms in a throw-away paragraph:
Finally, there are rumors that Bear will be acquired. I can't imagine someone will want to catch that falling safe,** but DeutscheBank, in a similar value-destroying exercise, acquired Bankers Trust roughly a decade ago. Note my negative view isn't based primarily on the worth of Bear's franchise. If that were the only consideration, it might be a very good time to snap up the firm. Investment bank acquisitions have a terrible track record, and Bear has a particularly entrepreneurial, sharp-elbowed culture. I can't see it as a fit with any other financial services firm.[emphasis mine]

Warren Spector has been guiding that culture for over a decade. Anyone acquiring it without him is likely to find the elbows more sharp than entrepreneurial.

*I say this as one whose career trading derivatives ended in part because of Spector's taking over the Risk Management and Derivatives area at Bear.
**"Roadrunner/The coyote's after you/Roadrunnner/If he catches you you're through."

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