The Bear Market

It's Wall Street, Without the Cash
With Only Memories to Trade, Bear Stearns Employees Awaiting Sale to JP Morgan

By David Segal
Washington Post Staff Writer
Thursday, May 29, 2008; C01

NEW YORK, May 28 -- What's truly odd about the demise of a Wall Street firm, it turns out, isn't the noise of the implosion but the quiet of the rubble. A post-calamity hush has settled over Bear Stearns's Manhattan headquarters. Traders who haven't left their desks for years take two-hour lunches. The phones rarely ring. A company with 14,000 employees, once known as the scrappy bantam of the financial world, is a zombie in a dark-blue suit.

Thursday, this undead corpse is going to bury itself. Or that's the expectation, anyway. Shareholders are scheduled to vote in New York on the reduced-for-clearance sale of the company to rival and next-door neighbor JP Morgan Chase. The price -- $10 per share -- would have been about as welcome as an obscene gesture last year, when Bear shares traded as high as $171. But in the span of a week in mid-March the firm basically vaporized.

"We knew it was a storm, but we didn't know it was the storm," recalls Fares Noujaim, a Bear Stearns vice chairman.

On Tuesday afternoon Noujaim, who is 44 and dressed in an impeccable pinstriped suit, is standing in his office on the top floor of Bear's headquarters. Movers have just shown up to haul away his furniture, which Noujaim paid for and which he's taking with him, wherever he ends up. All that is left is a killer view, a phone and a two-screen computer monitor on a bare floor.

"There was a TV here, a mirror over there," he says, gesturing around the room. He points to the ceiling. "I put in the recessed lighting."

Obviously, the lights stay, but nearly everything that can be wrapped up and packed at 383 Madison Ave. is on its way out the door, if it hasn't left already.

You think your office is depressing? Try a company where as many as 10,000 employees could soon be laid off. For added grimness, imagine a company that's been taken over by a former enemy. JP Morgan sent in "transition teams" on March 17, the day after the deal was announced. Job interviews have been underway for weeks, though in this case the candidates already have jobs and the interview is to determine whether they can keep them.

To say the least, this has been kind of awkward.

It's as though an opposing army has invaded and is trying to be courteous about finishing off the POWs, says a Bear employee, who, like others interviewed for this story, did not want to be identified for fairly obvious career reasons. "You knew they were going to hold you in prison, and you had to do everything they said. Or else they'd kill you."

* * *

Noujaim presses the elevator button to head down to the fixed-income trading floor, part of a quick tour he has offered to give a reporter. He's trim, intense and, at the moment, pretty distracted. He's about to land a job with a different firm, though he's still conducting Bear business. "I work for this company, and I'll continue to work for it until it's gone," he says.

Everyone else here appears to be socializing in somber groups of two or three. A lot of the offices are empty but for a desk and chair. The atmosphere is what you'd imagine at a Broadway show that's been canceled.

"Have you figured out what's next for you?" Noujaim asks a woman he greets on the elevator with a pat on the back.

"Well, I've got a few options," she replies. She mentions two of those options, but before she can get to the third, the doors open and Noujaim is on his way.

"Good luck," he says.

The fixed-income trading floor has row after row of computers and black chairs, an indoor prairie that looks two acres in size. At full bustle, rooms like this convey the blood lust that is capitalism at its most carnivorous, and when Bear was alive and well, Noujaim says, you'd have to shout to make yourself heard in here. The ceiling tiles were designed to reduce noise. Now, most of the seats are empty. In the few that are filled, traders are reading newspapers, or idly chatting on the phone while a Microsoft logo floats around their sleeping monitors.

"This is deathly quiet," Noujaim says. "When this place was functioning, it was a battleground."

The proximate cause of Bear's passing was a good old-fashioned run on the bank. Hedge-fund investors, spooked by rumors that the company's balance sheets were awash in toxic subprime mortgage securities, drained it of so much cash that it went bust. Seventeen billion dollars flew out the door in two days in March. The asset transfer system, which wasn't designed for an exodus of greenbacks on this scale, froze for a while. Fund managers were said to be showing up in the lobby, demanding their money.

In a sense, Bear was gossiped to death. And the company fought back with what several employees consider a mediocre crisis PR operation, one that was complicated by a bit of bad luck. When Bear CEO Alan Schwartz was interviewed a few days into the meltdown, on March 12, his no-problems-here refrain was interrupted in mid-sentence.

"I'm sorry to jump in here," said CNBC anchor Erin Burnett, who suddenly appeared on the screen. "Breaking news, though, we do want you to know that we have New York state officials confirming that New York Governor Eliot Spitzer will resign today."

Schwartz's attempt at pushback was too little and it might have been too late, since the momentum against Bear was nearly tsunami strength by then and wiped out the company a mere five days later. The day of Schwartz's CNBC appearance was also the day Bear employees started to panic. Especially after a senior managing director stood on a desk and announced to a group of underlings that everything was fine.

"He was so adamant," says an employee, "that we all realized, 'Oh my God, we're not fine.' "

* * *

Everyone at Bear has contracted a mild case of sudden infamy. The company has come to embody the excesses blamed for what is all but officially a national recession, and it achieved something close to villainy after the Federal Reserve Board promised $30 billion to backstop the sale to JP Morgan. Protesters showed up in Bear's lobby, chanting "Help Main Street, not Wall Street." Schwartz was summoned to Congress, where he was gently barbecued. John McCain denounced "very greedy people" on Wall Street in a meeting with reporters and singled out Chairman Jimmy Cayne, "who decided the day before he was bailed out by the federal government to cash in millions of dollars worth of stock."

This is true, though Cayne's sale will be remembered on Wall Street not for how much it netted him, but how little. His shares were worth $61 million when he sold them in late March. They were worth about $1 billion last year.

After a quick stop at the cafeteria, Noujaim heads back to the 43rd floor, to one of the firm's "entertainment suites." Dinner for him and a few clients will be served here in a few hours. A waiter in formal black and white flutters in and out of the room, laying out bowls of nuts, readying plates of cheese. There's a fully stocked bar against a wall. It feels like the banquet room on the Titanic after the iceberg pierced the hull.

"Where else can you eat dinner with a view of New York like this?" Noujaim asks, looking out the window.

Noujaim is the son of immigrants from Lebanon and was raised in the Bay Ridge section of Brooklyn. He's a typical Bear Stearns employee, he says: No Ivy League degree or family connections. In the firm's parlance, he's a PSD, short for "poor, smart and desperate to be rich."

Bear set itself apart from competitors, Noujaim says, by encouraging employees to stay for their whole careers. To him, Bear expired because it was so much smaller than rivals and lacked the resources to weather what he thinks was essentially a storm of damaging whispers.

That, at any rate, is the view from the top. At lower pay grades, the blame is laid on Bear's somewhat insular corporate culture, which purportedly allowed mediocre managers to dominate fiefdoms long after those managers stopped innovating. For a long time Bear's unofficial motto, says a member of the prime brokerage division, was if it ain't broke don't fix it. When two of Bear's hedge funds collapsed, in July of last year, then-CEO Cayne was reportedly at a bridge tournament, incommunicado.

"To tell you the truth, I'm psyched to work for JP Morgan," this employee says. "I'm happy to get away from these knuckleheads."

The occupying force that JP Morgan sent has been reasonably humane, considering its task. No end-zone dances, no high-fives. A kind of there-but-for-the-grace civility has prevailed, for the most part.

Within Bear, the anger is directed at Bear's leadership. The atmosphere is so fraught that when Cayne, who is 74 and now the company's chairman, walks around the office he's accompanied by beefy security guards. Word around the company is that the guards are to protect him from his own employees.