At Bear Stearns, resentment and fear abound

Less than a year earlier, shares of the Bear Stearns Co., one of Wall Street’s venerable investment banks, had been trading above $150. But the stock’s price plummeted recently in a matter of days as investors panicked over rumors that the bank faced a cash shortage and would default on its fiscal obligations.

Last week, the purchase of Bear by JPMorgan Chase & Co. with the backing of the Federal Reserve and the Treasury Department, wiped out much of the life’s savings of many of Bear’s thousands of employees, more than 40 of whom are University alumni. Though the original deal was signed, JPMorgan has since increased its bid price to about $10 per share on the heels of protests from angry Bear shareholders.

“A lot of people feel betrayed,” said Weiss, a managing director at Bear whose real name is being withheld because employees have been instructed to not speak to the press. He noted that some of his colleagues had lost up to 80 percent of their personal wealth in the firm’s collapse.

“I was so happy a year ago,” he added, recalling his decision to first join the firm. “Everything that happened up until two weeks ago made me so happy to be working with Bear.”

Now, “People keep walking around as though it will never be the same,” he said.

Many Bear employees face an uncertain future as their firm, once proudly independent, has been forced into the arms of one of its former rivals.

“Just like a lot of people working there, I am worried about my job,” said Wei-Tong Shu ’90, a managing director at Bear. “And I am disappointed at the destruction in Bear Stearns’ stock price.”

Beyond the alumni who work with the firm, several current students planned to intern at Bear this summer, but none could be reached for comment.

Career Services Director Beverly Hamilton-Chandler declined to comment for this article, citing ongoing uncertainty about the interns’ positions. Bear recruiters would not grant interviews about the situation, citing instructions not to do so.

Several other alumni also shared frustrations about what happened with Bear, singling out the firm’s leadership for criticism over not being better prepared for a possible crisis.

“I understand that extraordinary liquidity problems can occur to any firm, but it’s incredible that there is no backup strategic plan,” said John Roberts, a Bear employee and Princeton alumnus, whose real name is also being withheld because of Bear’s restriction on employees speaking to the press.

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Shu affirmed that view: “The senior management deserve all of the blame,” he said.

“No company is immune to fraud, poor management, predatory competitors or external economic factors,” Roberts noted.

“Weren’t the Enron folks ‘The Smartest Guys in the Room?’ ” he added, referring to the best-selling book documenting the downfall of one of the world’s leading energy firms due to systematic fraud on the part of its management.

One alumnus faulted Bear’s long-standing culture of employee-ownership, which he said encouraged individuals to take unnecessary risks. Employees own one-third of the firm.

Bear “did have a culture that encouraged an unhealthy amount of BSC stock ownership,” Roberts said. “There is no reason why employees of any troubled company should be at risk for losing both their primary source of income and their retirement nest-eggs.”

The alumnus faulted Bear for encouraging employees to invest in the firm in a way that left them vulnerable to sudden changes in the company’s stock price, noting that as much as 70 percent of employee shares are so-called “restricted stocks” which cannot be sold until five years after the employee receives them.

This is “an unusually high percentage and long lockout period,” Roberts said, explaining that the policy was implemented by the bank’s management and compensation committee and did not necessarily take employee views into account.

Several alumni reacted strongly to the initial $2 bargain buyout price proposed by JPMorgan.

“I believe that the BSC shareholders may have been better off in a bankruptcy than at $2 per share,” Roberts said said. “At the least, it would allow BSC to essentially nullify or stay the existing purchase agreement with [JPMorgan] and open up the deal to other bidders.”

Not everyone is displeased with the acquisition by JPMorgan.

“The combination with JPMorgan Chase will make this franchise even stronger,” Robert Stibolt ’76, chief risk officer at one of Bear’s energy trading subsidiaries, said.

Weiss, however, was more cautious about Bear’s future.

“I don’t think it will be the same, but I hope that the best of it survives.”