Bear Stearns: 35-to-1 Debt, a $2 Fire Sale and a Typo Worth $8 a Share

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

Bear Stearns was founded in 1923 by Joseph Ainslie Bear, Robert B. Stearns and Harold C. Mayer with $500,000, and survived the 1929 crash without laying off a single employee. It went public in 1985 and, under Alan "Ace" Greenberg and later James Cayne, grew to more than 15,000 staff at 383 Madison Avenue. By late 2006 it held over $350 billion in assets and about $13.4 trillion in notional derivatives, and by 2007 it was borrowing at 35.6 to 1, with $28 billion of hard to value Level 3 assets against $11.1 billion in equity.

In June 2007 it pledged up to $3.2 billion to rescue its High-Grade Structured Credit fund, in which it had invested only $25 million; Merrill Lynch seized $850 million of collateral and found buyers for about $100 million. The firm posted its first quarterly loss in 83 years. Between March 10 and 13, 2008, its cash pool fell from $18.1 billion to $2 billion. A $25 billion Fed loan was withdrawn, and over one weekend JPMorgan Chase agreed to buy the bank for $2 a share, a stock that had traded at $172 in January 2007. The Fed created Maiden Lane LLC to take $30 billion of its assets, funded by a $29 billion Fed loan and a $1 billion JPMorgan loan that would absorb losses first.

• Fund managers Ralph Cioffi and Matthew Tannin were arrested by the FBI and later acquitted of criminal charges.
• Barclays sued, saying it was told its sister enhanced fund was up 6 percent through June 2007 as it collapsed.
• The weekend contract, drafted by Wachtell Lipton, guaranteed Bear's trades without tying the guarantee to the merger closing.
• That gap gave shareholders bargaining power, and JPMorgan raised its offer to $10 a share on March 24, 2008.
• Time later named Cayne among the CEOs most responsible for the crisis, and JPMorgan retired the Bear Stearns name in January 2010.