By now, everyone on Wall Street knows Bear Stearns is in deep—well, you know what. But where does the firm’s state of emergency leave its 500 or so advisors? That depends on whom you ask.
One theory making the rounds is that the 85-year-old financial powerhouse is in such dire financial straits that it is putting itself up for sale. (The firm’s desperate capital situation became clear this morning when it announced that it would receive a Central Bank loan, facilitated by J.P. Morgan.) If learning that their firm is in financial shambles isn’t enough, some reps are sure to consider heading for the exits if they find out that Bear will be acquired.
“Right now, Bear Stearns advisors are looking for another firm to join,” says one industry consultant. “Within 60 days, the big producers will be working for someone new.” The new Bear Stearns, he says, will either be a re-capitalized bank with a new management team facing pressure from creditors, or one that’s merged with another bank. The price Bear will get for such an acquisition, he adds, is 50 cents on the dollar—at most.
Industry analyst Dick Bove, of New York-based Punk, Ziegel & Company, speculates that the Federal Reserve will keep Bear in a reasonable condition that will allow it to meet its financial requirements, but that will force the firm to dramatically shrink its operations over the next six to 12 months. “It’s likely that the higher-producing advisors will not want to stay at the company because their clients will have fears about the Bear’s liquidity and financial stability,” he says.
Who will win these reps? Well, that’s tough to say. The problem, Bove adds, is that jobs are scarce on Wall Street. “Companies are shrinking all around the Street. It will be difficult to switch unless you’re a very high producer.”
But a former general partner at Bear Stearns says advisors at the firm would be smart to stay on board, and use the current state of volatility to their advantage. “Branch managers there should be doing what they can to keep advisors from leaving. As a manager, I’d offer perks to the better producers. And if I were a broker there, I wouldn’t be bashful to ask them to sweeten the deal. It’s time for every broker there to be a businessperson and say, ‘I have to answer to my clients about this mess. I should be rewarded for that,’” he says.
Still, for top producers, the question will be: Why stay on board when you might get a great offer from a more financially stable firm? He says Bear will pull through and come back with a new and improved management team. “Bear used to have this mystique surrounding it. People believed it was run by tough, smart guys who came up with creative and strong ideas. That sort of confidence needs to be re-built globally,” he adds.
We’re guessing he’s not talking about this kind of confidence and mystique.