Company Overview

Founded in 1923 by Joseph Ainslee Bear, Robert B. Stearns, and Harold C. Mayer, Bear Stearns built its business reputation around strong trading and clearinghouse operations. With the largest clearing operation in the country, Bear handles approximately 10 percent of all trades that go through the New York Stock Exchange. The firm is also known for being an aggressive trader. Bear entered the investment banking arena in the early 1990s—concentrating on specific industry groups across all product lines.

Although Bear Stearns is smaller than many of its rivals, it has historically been considered a significant player. The firm suffered greatly from financial wounds inflicted by the sub-prime market meltdown in ’06 and ’07, however, recording a net loss of $854 million in the fourth quarter of 2007. Revenue fell $379 million into the negatives and income dropped 89-percent to $223 million, with a fourth-quarter loss of $6.90 per share (compared to $4 earnings in the same quarter of 2006).  The Federal Reserve approved a loan to Bear Stearns in March 2008, saying the fall of Bear Stearns would just be the beginning to a wave of problems throughout the financial world.  JPMorgan Chase, the third-largest financial services firm, then agreed to buy Bear Stearns for an original offer of $270 million or $2 per share (Bear Stearns’ shares were trading at approximately $170 a piece before the deal). JPMorgan Chase later raised its bid to $10 a share, or around $1.2 billion, after Bear Stearns executives contested its beyond-bargain offer.

Adding to the chaos of 2007, the story broke that the Securities & Exchange Commission and the U.S. Attorney's office in Brooklyn began an investigation into a manager associated with the two folded hedge funds possibly pulling his money out while the funds' managers urged other investors not to move their money.  Ralph Cioffi, the manager of the hedge funds invested in subprime mortgages, left the firm during the investigation.

The pressures of healing the damaged company proved too great for longtime CEO James Cayne. The 73-year-old began 2008 by announcing he would step down from the top position and remain as chairman, passing the weighted position to Bear President Alan Schwartz, the 57-year-old founder of the firm's investment bank.  One month later, Bear Stearns announced it would be rescinding offers made to business school students whose positions would instead be filled by JPMorgan Chase employees.

According to an article in the Wall Street Journal, Schwartz revealed the following threefold plan: “continue exiting from unwanted positions in leveraged loans and in mortgages; find new ways to make profits in the changing fixed-income business; and nurture Bear's healthier business units, like its growing international operations and energy unit.”

The predicted future of Bear Stearns varies depending on the executive or analyst speaking—some have hinted at the purchase of a hedge fund or even a buy-out—but word on The Street is that Schwartz could effect the kind of positive change the company desperately needs. Fortune magazine reported upon Schwartz’s appointment that the 57-year-old is described among peers as “a helluva dealmaker.” Still, the same article said the new CEO has little experience with the company’s core fixed-income franchise or its back-office clearance and prime brokerage businesses.

He is, however, as one colleague described him, "a helluva dealmaker." This is important because Bear Stearns is perpetually bandied about as a takeover target for a larger bank seeking an instant footprint on Wall Street. The rumors are certain to increase given the continued weakness in the bank's stock price, which has declined 54 percent in the last year.

The firm currently operates three main segments: capital markets, global clearing services, and wealth management. Capital markets includes fixed income (mortgage-backed securities, asset-backed securities, corporate and government bonds, munis, high-yield, foreign exchange, and fixed-income derivatives), institutional equities (domestic and international sales, trading, and research), and investment banking (underwriting, M&A, and merchant banking). Global clearing services provides clearing, margin lending, and securities borrowing for short-seller clients. And the firm provides private client services and asset management through its wealth management segment. 

Bear has been growing key operations including prime brokerage services, asset management, and high-yield and mortgage-backed securities underwriting; and in recent years has concentrated more on banks, other businesses and institutions, and municipalities with less than $10 billion in assets. The firm has also been rapidly expanding in the United Kingdom and Japan, and recently entered into a joint venture with Citic Securities, a Chinese government-owned investment firm it received a $1 billion investment from in October 2007. The two companies planned to take a $1 billion stake in the other and invest in Chinese and other Asian companies together.

The company had also been focusing more on middle-markets business by targeting banks, municipalities, and other institutions with less than $10 billion in assets. In 2007, it bought the subprime mortgage operations of ECC Capital Corporation. Through its Bear Growth Capital Partners subsidiary, it increased its retail investments with swimwear chain Just Add Water, which it added to its existing holdings in Everything But Water.  Energy trading unit Bear Energy also acquired the power trading assets of The Williams Companies in 2007, resulting in the subsidiary’s management of more than 9,000 megawatts of power.

Bear Stearns faced some trouble before the subprime mortgage crisis, as well. It didn’t escape some of the recent problems faced by many of its peers—it paid approximately $250 million to settle claims of conflict of interest between research and banking operations as well as market-timing and after-hours trading. And in 2006, Bear was fined for permitting some of its clients to change their auction-rate bids.

Undergraduates can apply for analyst positions in asset-backed securities, asset management, collateralized debt obligations, commercial mortgages, financial controlling (i.e., risk management), fixed income, clearing services, global credit, international equity, investment banking, mortgage finance, operations, private client services, and public finance. Graduates can apply for associate positions in asset management, financial management, investment banking, equity research, and sales and trading.