Transcripts

Bear Stearns Braces for a Management Shake Up

SUSIE GHARIB: Investors also bailed out of Bear Stearns stock today following reports that James Cayne will step down as CEO. Shares of the brokerage firm lost nearly 7 percent. Bear made no formal announcement, but NIGHTLY BUSINESS REPORT has confirmed that board members held a conference call this afternoon to discuss management changes. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It looks like the head of Bear Stearns is the latest casualty of the nation's sub-prime mortgage crisis. But analysts say by promoting Bear's president, Alan Schwartz, into the office of the chief executive and keeping James Cayne as chairman, the firm is not truly responding to shareholder pressure. Sanford Bernstein analyst Brad Hintz calls the management reshuffling a steady as she goes strategy.

BRAD HINTZ, BROKERAGE ANALYST, SANFORD C. BERNSTEIN: I think the questions that people are having is, is this a real change of management? And the answer is no. I mean, Bear is a company that doesn't have and that hasn't had rapid change of management. They've had two CEOs over an 18- year period and we've got a management team that's been very tight over the years.

PRATT: The pending reorganization of Bear's top offices follows nearly a $2 billion charge and the firm's first quarterly loss. Citigroup CEO Chuck Prince and Merrill Lynch Chief Executive Stan O'Neal stepped down last year after both firms also took big write downs related to bad bets on sub-prime mortgage debt. Bear's mortgage business, responsible for a big chunk of profits, is in dire straits. While most analysts believe the mortgage market will eventually come back, investors are worried about how Bear will replace revenue in the meantime. Those concerns are well- reflected in the company's share price. The stock has lost more than 50 percent in the last year and while some investors may want to kick its tires, most analysts are reluctant to recommend it.

HINTZ: Right now, buying Bear, you have to say you feel very lucky and you know that the mortgage market isn't going to get much worse from this point. I'm not certain that I'm willing to tell my clients to do that yet.

PRATT: Trouble in the top offices of Bear Stearns has also reinvigorated talk of the firm as a takeover target. While some experts believe a partner with deep pockets makes sense, others say the possibility of more losses could keep suitors away. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.