Reckoning Expected For Bear's Cayne

Months of pressure to resign over steep mortgage-related losses may finally have gotten to Bear Stearns Chief Executive James Cayne.

Cayne is planning to step down as chief executive, though he intends to retain the title of chairman, according to reports late Monday. The news comes just weeks after Bear Stearns logged an $854 million loss for the fourth quarter, with its full-year profit nearly wiped out by billions of dollars worth of write-downs on its holdings of mortgage securities and derivatives.

Bear Stearns was the first major bank to report problems in what turned out to be an industrywide crisis, closing two hedge funds over the summer that invested in collateralized debt obligations after losses of $1.5 billion. Cayne has been pilloried since in news reports as a chief executive more interested in golf outings and bridge tournaments than one working diligently to get his firm out of its problems.

Nonetheless, the 73-year-old Cayne has held onto his job longer than a number of other Wall Street chief executives. Stanley O’Neal of Merrill Lynch, Charles Prince of Citigroup, and Peter Wuffli at UBS have all been pushed out over their firms' subprime-related losses. Cayne ousted his own president, Warren Spector, this summer. Zoe Cruz lost her job at Morgan Stanley in December after that firm took billions of dollars worth of additional write-down on its mortgage holdings.

A spokeswoman for Bear Stearns did not immediately respond to a request for comment Monday night.

The Wall Street Journal reported Monday evening that Cayne had told board members he plans to relinquish the chief executive job, citing unnamed sources familiar with the situation. His likely successor: Alan Schwartz, a well-respected investment banker at a firm more known for servicing hedge funds and for fixed-income activities.

An announcement could come as early as Tuesday, the Financial Times reported.

Bear Stearns, like several other Wall Street firms, has had to turn to outside investors to shore up its capital. In October, it sold a 6% stake to China’s Citic Securities, a government-controlled firm. If a well-regarded dealmaker like Schwartz is promoted to chief executive, it raises the possibility that the firm will sell additional stakes of itself or find a merger partner.

Bear Stearns has been the subject of takeover speculation for many months. It is among the smallest of Wall Street firms and has one of the largest exposures to the subprime mortgage mess.

Bear’s fourth-quarter loss was its first in 84 years. Cayne and other members of the executive committee did not get bonuses for the year. The company’s stock was sliced nearly in half for the year.

When it announced the losses in December, Cayne was contrite, saying, “We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses.”

Replacing the chief executive has been one way Wall Street firms have been signaling to investors that they are trying to fix the situation, but it's unlikely to help in the short run.

Despite several rate cuts by the Federal Reserve, and additional efforts by the central bank to pump cash into the banking system to ease the credit crunch, liquidity problems remain and have spread beyond Wall Street to commercial banks, like National City Corp.

Even E*Trade, the online brokerage, had to get out of mortgage lending and sell a $2.5 billion stake of itself to the Chicago hedge fund Citadel to get itself out of a liquidity bind. E*Trade replaced its chief executive, Mitch Kaplan, with an interim chief, Jarrett Lilien.

Vikram Pandit, the new chief executive at Citigroup, is facing $13 billion to $18 billion in additional write-downs and pressure to break up the company to fix the capital problems there. Merrill Lynch’s John Thain, brought in to replace O’Neal, is also facing billions more in write-downs. Both firms are set to lay off thousands of employees to cut costs.

"It will be a couple of quarters before the current credit crisis is fully digested by the markets," Goldman Sachs analyst William Tanona said in a recent research note.