NEW YORK (AP) — Bear Stearns Cos. said yesterday that co-President and co-Chief Operating Officer Warren Spector has resigned after the meltdown of two hedge funds that invested in risky mortgage-backed securities.
Alan Schwartz, who had been Bear Stearns' other co-president and co-COO, will become the sole president effective immediately, and Samuel Molinaro Jr. will assume the role of chief operating officer in addition to his current duties as chief financial officer, the firm said yesterday. Jeffrey Mayer, co-head of the fixed-income division, will take Mr. Spector's seat on Bear Stearns' executive committee, the firm said.
"In light of the recent events concerning [Bear Stearns Asset Management's] High Grade and Enhanced Leverage funds, we have determined to make changes in our leadership structure," Chairman and Chief Executive James Cayne said. "I have every confidence in this team to continue Bear Stearns' 84-year legacy of success and profitable growth."
Mr. Spector, 49, had spent his entire career at Bear Stearns since joining the firm as a trader in 1983 and had been considered a likely successor to Mr. Cayne, 73.
But the collapse of the two hedge funds in the asset-management unit that Mr. Spector oversaw put him and the firm under pressure. The funds filed for bankruptcy protection Tuesday, two weeks after the company told investors that one with assets of about $638 million was essentially worthless, and another worth about $925 million before taking on losses in March had lost more than 90 percent of its value.
Both funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky borrowers began to default. Bonds backed by home loans and similar investments have lost value because of rising homeowner defaults as the housing market enters its third year of decline.
As reports became public that Mr. Cayne had asked for Mr. Spector's resignation, Standard & Poors said Friday that it was considering cutting Bear Stearns' credit rating because of the firm's exposure to the distressed mortgage and corporate buyout markets.
A lower rating likely would make it more expensive for Bear Stearns to borrow money.
Separately, another ratings agency, Fitch Ratings, downgraded $46.4 million worth of Bear Stearns bonds backed by subprime mortgages, or home loans to people with spotty credit histories.
The news sent the Wall Street brokerage's shares tumbling to their lowest price since November 2005. The shares fell $7.28 to close Friday at $108.35.
Bear Stearns, the nation's fifth-largest investment bank, has said the problems with the hedge funds were isolated incidents and "by no means an indication of broader issues at Bear Stearns."
Mr. Spector said in the Bear Stearns statement that the firm has weathered countless challenges in its history.
"I am leaving with nothing but the highest respect and regard for Bear Stearns and all the talented professionals with whom I have been privileged to work," Mr. Spector said. "I intend to remain a significant shareholder and will follow the firm's future success with great pride."