Bear Stearns' Young Syndication Team Aims to Build Business from

Steve H. Capp and Mark S. Lies want to catch up. They ask about industry news: Who has joined what bank? What deals are in trouble?

And most important: What are bankers on the Street saying about them?

Since joining Bear, Stearns & Co. from Bank of America Corp.'s loan syndication team in April, Mr. Capp, Mr. Lies, and Keith Barnish have been overwhelmed with trying to adapt to an investment banking culture.

"We've been doing things to justify our existence," quipped Mr. Capp, 37, a managing director at the firm. In a more serious vein he added, "We've been training people and teaching them about the product. We've been learning, too. Now we're going out to meet clients."

It is a familiar refrain -- a major investment bank, seeking to round out its product line, makes high-profile hires away from a major syndications house. The difference here is that Bear Stearns' peers -- Merrill Lynch & Co., Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette among them began building their shops in the mid-1990s.

As a result, this new loan team is behind its Wall Street competitors that have worked years at perfecting one-stop shopping and winning the confidence of major corporate clients, a fact not lost on the Bear Stearns loan team or senior management.

"They got into it later than they would have otherwise chosen," Mr. Capp said. "They've missed huge opportunities."

Don R. Mullen Jr., head of the corporate credit area at Bear Stearns, conceded that "we kind of fell down on the job" by putting off building a loan team. But he contended that business was booming at the firm in its established acquisition finance teams, and the prevailing philosophy was "we had to put out those fires first."

The search for a loan team dragged on for more than two years. It finally ended this spring, a year after Bank of America was created out of the $60 billion merger of Charlotte, N.C.-based NationsBank Corp. and BankAmerica Corp. of San Francisco.

That union brought two experienced loan teams together, a combination that many loan-market participants viewed as a talent glut. As the integration at Bank of America progressed, loan executives from the old California banking company said they began to feel their role diminishing.

Their fortunes in doubt, combined with Bear Stearns' increasingly desperate search, provided the catalyst that brought the three-member team to investment banking.

"I was with BankAmerica in 1991 and I've been there -- at the bottom of the league tables -- and made it all the way to the top, or near the top," Mr. Lies, 39, said. "The way I see it is this is the last chance to build a business from scratch."

But that opportunity is coming in a world that in some ways has jolted the commercial bankers' sense of the loan business.

Gone are the long days of structuring and pricing an endless flow of new deals that crossed the threshold at Charlotte-based Bank of America, the nation's No. 2 syndicator. Just as their more established rivals did, the leveraged loan team at Bear Stearns is engaged in efforts to not only educate co-workers about use of the loan product, but convince senior management to commit capital to the new business.

"One of the trade-offs is the size of the balance sheet," Mr. Lies said. "But the fact is that most commercial banks are earning 10% to 12% on loans. Here the expectation is to earn 20% or more."

Yet there are benefits, Bear Stearns bankers said they have been impressed with their new employer's outstanding research team -- and diligent, fast-acting credit culture.

"The external perception of Bear Stearns is that it's the wild, wild West, very entrepreneurial" Mr. Lies said. "We were immediately impressed with their risk management and credit culture. It's beyond everything we've seen."

Even though the team is still in a break-in period, it has completed three key deals. It led a $140 million loan and $340 million bond issue for the Florida Panthers, the Miami-based National Hockey League franchise. During the summer Wyndham International Inc., based in Dallas, tapped the firm for $2.45 billion in financing after Bear Stearns served as its mergers and acquisition adviser. And this month the firm led Blockbuster's initial public offering and backed the company with $1.4 billion in loan financing.

Lending "isn't the focus of the firm." Mr. Capp said. "It's just one of the products in our quiver."

But it's a quiver that has been in the making for the last half century. In 1998, Bear Stearns ranked in the top 10 for mergers and acquisition advice, junk bonds, investment-grade bonds, and initial public offerings.In fact, Mr. Mullen said, it was only under increasing pressure from clients that Bear Stearns began to explore adding loans. Now, he said, the debt team members must "prove ourselves" as viable lenders and change market perception that Bear Stearns is unwilling to commit its balance sheet to syndicated lending.

"Our exposures have reached almost $1 billion, and we have hold positions in all of the deals we've done," Mr. Mullen said. "We try to never force bank debt into the market. If we were that reluctant we wouldn't have hired that many senior people to run the business."

Still, Mr. Mullen concedes he doesn't expect the firm to make a significant impact in syndicated lending league tables. "We don't run our business for league tables," he said, but added that Bear Stearns does want to have a strong showing in leveraged lending and "we'd like to make a meaningful dent."

It might not be so easy. Richard Carey, a director of syndicated finance at Credit Suisse First Boston said he doesn't know about Bear Stearns' efforts in the loan business, but said it is hard to have an immediate impact in the business. Credit Suisse First Boston entered the business in the mid-1990s and struggled early on. The investment bank now holds a bulge-bracket position in leveraged lending. But its overall lending market share was only 1.1% in 1998.

"It takes a long time to build client relationships and win confidence," Mr. Carey said. "You don't just make a few big-name hires."

Ultimately, Mr. Mr. Barnish, Mr. Capp, and Mr. Lies said they miss the power and punch of working for Bank of America. But like most entrepreneurs, they felt there was something missing: the charge of building a building a business rather than maintaining it.

"When you're at a B of A you're working on deals all day long," Mr. Lies said. "That's a tremendous excitement. It's fun to work on deals and it's a nice position to be in. But bigger isn't always better.''

Mr. Capp added, "At the end of the day it's a pure challenge and opportunity."

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