Opportunities arise from fall of Bear Stearns

Six months ago, Diao was a group head for special situations credit with Bear, the investment bank that came to the brink of bankruptcy in March and was subsequently bought by JPMorgan Chase.

Diao was one of the 14,000 Bear employees whose jobs hung in the balance as a result of the merger. Though the initial shock of Bear’s fallout left Diao worried about his financial and job security, he decided to view the crisis as an opportunity.

“ ‘[T]his is the best thing that ever happened to you because it will kick you in the butt to go do something that you can be passionate about rather than be held hostage by golden handcuffs,’ ” Diao recalls a client telling him after Bear’s collapse.

Even as he tried to look at Bear’s collapse as an opportunity, however, he said the merger took its toll on everyone at Bear.

“To say that we were shocked by the government-imposed [share] price would be an understatement,” he said.

Joseph Noto GS ’98, a managing director at Bear who ran the London office treasury department, had an inside view of the discussions with the Federal Reserve during Bear’s fateful weekend at the brink.

“It was certainly a lot quicker than anyone could have expected it to happen,” Noto said. “We worked nonstop trying to figure out what could be done to save the company, and what needed to happen to protect the markets,” he added.

Noto was among the Bear employees who joined JPMorgan, and he now works as a treasurer in its investment banking division.

“We realize that as difficult as going through what we went through was, the outcome was preferable to the alternatives,” he said.

Diao said that even in the wake of the bankruptcy of Lehman Brothers and the sale of Merrill Lynch, for Bear employees, timing makes little difference. “The damage and pain is the same,” Diao said.

Diao noted that it should actually have been easier for employees of banks that fell after Bear, because they had the “opportunity to anticipate the increasing ferocity of the storm and could have diversified their personal wealth better than we did.”

Bear encouraged its employees to purchase company stock, and accordingly many lost a great deal of money as a result of the failure.

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“Bear employees, by being the canary in the mine shaft, never had that opportunity [to limit exposure to Bear stock], and never knew what hit them,” Diao added.

Noto noted that Bear’s failure “definitely cushioned the blow [for other banks that failed].”

The merger has also dramatically changed the face of JPMorgan.

Tom Hagerstrom ’82 worked with JPMorgan for 12 years before joining Bear in 2001. After the merger, he found himself back at JPMorgan.

The merger was greatly beneficial to JPMorgan, he said.

“Bear substantially enhanced JPMorgan’s capabilities in a number of areas, such as prime brokerage, and added to the depth to several other of JPMorgan’s business units,” Hagerstrom said.

Ankur Patel ’09 worked in treasury and security services for JPMorgan this summer and witnessed the merger of these two banks.

The internal shuffling of jobs of first- and second-year analysts resulted in these employees getting asked to do tasks they wouldn’t normally do, Patel said.

“When the economy is doing well, there are more opportunities. This summer, business was slow, so people got a lot of ad hoc tasks,” Patel noted.

He also explained that former Bear employees who were hired for specific desks had to settle for whatever groups were available when they came to JPMorgan.

Though it is too late for their former employer, Noto and Diao support congress’ $700 billion plan to help banks by purchasing illiquid securities.

“I am for intelligent government intervention when the circumstances merit it,” Diao said. “Today’s circumstance does merit it,” he added.

“I think at the end of the day, the question is at what point will the credit market regain confidence?” Noto said.

“What we’re seeing today is unprecedented,” he added.