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Bear Stearns employees wiped out

Andrew Willis, March 17, 2008 at 1:44 PM EDT

For years, Bear Stearns employees were some of the best paid individuals on Wall Street.
Rivals were openly envious of the $40-million that former CEO Jimmy Cayne took home in 2006. Compensation for these executives matched that of far larger and more profitable rivals, such as Goldman Sachs.
No one is envying Bear Stearns employees now.
The destruction of personal wealth that just played out at the fifth largest U.S. brokerage firm is staggering. Bear Stearns current and retired employees owned a third of the brokerage house, worth $7-billion (U.S.) when shares peaked last year at $158 each.
Forbes magazine labeled Mr. Cayne the richest Wall Street CEO, with a $900-million stake in his firm anchoring a $1.3-billion fortune.
Now Bear Stearns is being purchased by JP Morgan Chase for just $2 a share, or about $270-million. Mr. Cayne’s stake in the company is worth just $13-million. Investment bankers who plowed their life savings into company stock have been wiped out.
And many of these Bear Stearns employees face unemployment at the same time their savings disappear. JP Morgan will go through the 14,000 employee work force with a scythe, chopping jobs while trying to preserve a few of Bear Stearns' strong franchises, including its prime brokerage.
Up and down the Street, the mood is grim. Virtually every investment bank employee, at Canadian, European and U.S. dealers, takes part of their pay in the form of shares that vest over time. Everyone has seen the value of these holdings drop sharply since the credit crunch began in August. But nowhere has the reverse of fortune been as brutal and swift as what played out at Bear Stearns.

  1. Dr Demento from Canada writes: Those at the top should probably join Conrad Black in prison . . .
  2. Andy V from Toronto, Canada writes: My heart bleeds for all those overpaid investment bankers who were the first to argue that the market reigns supreme. Good bye Holt Renfrew ... hellow WalMart!
  3. ali mansur from Etobicoke, Canada writes: There is a small number of employees who were obligated to invest in "B.S.", the rest of the employees are smart of enough to understand the concept of diversification, I reckon.
  4. Moose Lion from Canada writes: Andy V:

    Don't worry...the first few hundred grand a year is usually paid in cash and the rest in deferred compensation. So those that lost the most probably had the most to begin with and will be fine afterwards...

    And the market does still reign supreme.
  5. Ross H from Muskoka, Canada writes: I don't feel too sorry for the people who held large stakes in the company.
    A $900 million investment would likely toss out a pretty good divident every 4 months... maybe somewhere close to $13 million?
  6. Peter Lefaivre from Edmonton, Canada writes: You can count on the fact the executives will come out of this mess in a lot better shape than the rank and file employees.
  7. Bob Hawkins from Oakville, Canada writes: The real losers are the number of share holders who bought the stock in good faith. Greed drove the management to invest in risky products without proper due diligence. How can these investment bankers, brokers justified the outrages compensation they received compared to Doctors and other caregivers who provide real value to society ?
  8. Steve Not an Alberta Redneck from Calgary, Canada writes: This might explain why, despite hiring a team of perhaps the world's best bridge players, Cayne was eliminated early last week in the North American Bridge Championships in Detroit.

    I wasn't there but from past experience, it was likely a popular loss.
  9. Robert Gow from Oshawa, Canada writes: Stupid is as stupid does. Too bad that the rewards of being stupid with other peoples money and livelihood are so high.

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