Facing Crisis, Bear Hopes Schwartz Is Fixer

Alan Schwartz of Wall Street firm Bear Stearns Cos. has long been counted on by chief executives as an investment banker to have in their corner in a crisis. Now, his own firm has turned to him to take over the reins as sole president to help guide Bear as it tries to convince investors that it is on solid financial footing A powerful executive at Bear, the 57-year-old Mr. Schwartz inspires admiration and some jealousy on Wall Street. Having been on Wall Street since the 1970s, he projects an air of been-there done-that confidence, say people who have worked with him. That plays well with boards of directors and executives, who are looking for guidance on the ever-sensitive question of corporate mergers. Now his skills will be tested in a different way. At Bear, he was co-president with Warren Spector, a former bond trader at Bear who was long considered the front-runner to take over the firm from current Chief Executive and Chairman James Cayne. A month or so ago, the audit committee of Bear's board, which is headed by chairman Vincent Tese, engaged attorney Robert Fiske Jr. to investigate the funds' collapse. Mr. Fiske was the lawyer who in 1994 acted as independent counsel in the government's Whitewater investigation, a probe of Bill and Hillary Clinton's land investments. As part of his look at the Bear funds, Mr. Fiske and his colleagues have been reviewing emails and other documents associated with the funds, says a person familiar with the matter. No timetable has been set for the final report, this person added. Last week Mr. Spector was pushed aside after presiding over a hedge-fund debacle that wiped out millions of dollars of investor money. The hedge-fund blowup led to a crisis of confidence and Bear's stock has fallen 30% since January. Mr. Schwartz is a smooth deal maker with a fat Rolodex. But he has little background in bond trading, the firm's core discipline. As Bear's sole president he likely will be expected to learn more about that corner of Wall Street. He will also have to prove his bona fides in a far different discipline: managing traders, a group more volatile by both personality and their potential effects on the business. On a conference call Friday and in private conversations, Bear executives have insisted their funding is solid along with the firm's profitability. At an internal management meeting yesterday, executives noted that Bear has plenty of liquidity and in the past year or so, has been replacing its short-term unsecured debt with longer-term secured debt -- even though the latter can be more expensive. Mr. Cayne himself has been reaching out to reassure other Wall Street executives whose firms trade with Bear. On Friday he called Merrill Lynch & Co. Chief Executive Stan O'Neal. Still, some Wall Street analysts, reacting to disclosures by Bear executives on Friday's call -- during which finance chief Samuel Molinaro described today's credit markets as the worst he'd seen in 22 years -- slashed their estimates for the firm's earnings for the third and fourth quarters. They also voiced concerns about the firm's ability to finance its operations. William Tanona of Goldman Sachs cut his estimate of Bear's third-quarter earnings by 33%, to $2.30 a share from $3.45. He also cut his estimate of 2008 profit by 16% to $13.75 a share. Mr. Tanona said he remains "neutral" on the stock despite its "attractive" valuation, partly because the firm may "experience overnight funding and longer-term debt refinancing issues," and the value of some of its assets may fall. Bear stock rallied yesterday, rising $5.46, or 5.04%, to $113.81 in 4 p.m. New York Stock Exchange composite trading, as investors snapped up beaten-down financial stocks. Bear's president "comes across as an old pro," says Peter Lyons, a partner at law firm Shearman & Sterling who worked with Mr. Schwartz in Boston Scientific Corp.'s $27 billion takeover of Guidant Corp. last year. A Bear spokesman said Mr. Schwartz was unavailable for comment. Still, Mr. Schwartz's disposition rankles some, who begrudge the way he can almost magically appear on some of the largest deals of the day, be it the sale of Chrysler to private equity fund Cerberus Capital Management, or Walt Disney's defense of an unsolicited takeover offer from Comcast Corp. back in 1994. This has given Bear Stearns an outsized presence in the merger game despite ranking just 23rd world-wide in the "league tables" kept by Thomson Financial. Mr. Spector's seat on the executive committee will be filled by Jeffrey Mayer, Bear's co-head of fixed income. An experienced mortgage trader, Mr. Mayer joined the firm in 1989 after a stint at Merrill. Seven years later, he was named head of Bear's mortgage business, and in 2002, became co-head of fixed income, Mr. Spector's old job.