Three years after the collapse of Bear Stearns Cos., which helped fuel the worst financial crisis since the Great Depression, former bond executives of the firm are running businesses at onetime rivals, including Bank of America Corp. and Goldman Sachs Group Inc.
Alumni of Bear Stearns, which has been accused in lawsuits of building faulty mortgage securitizations, have contributed to a Wall Street rebound. Profits at broker-dealers totaled $89 billion in 2009 and 2010, the two best years on record, according to New York state's comptroller. "That's Wall Street," said Jeanne Branthover, a managing director at Boyden Global Executive Search Ltd. in New York. "Maybe the rest of the world looks at it negatively, to have been associated with Bear Stearns, but if we didn't have these types of survivors and Wall Street couldn't reinvent itself, we as a country wouldn't survive."
Others see things differently. Even if former Bear Stearns employees operated within the rules of the period and lost money when the company's shares tumbled 94%, their subsequent good fortune may be resented on Main Street, said Simon Johnson, a professor at the Massachusetts Institute of Technology's Sloan School of Management.
"Bear Stearns was an integral part of how the system became dangerous," said Johnson, a former International Monetary Fund chief economist and author of "13 Bankers: The Wall Street Takeover and the Next Financial Meltdown." "I have no idea whether these individuals did anything wrong, but they were reemployed quickly, unlike the rest of the real economy, or the teachers now losing their jobs because of the damage done. There's an asymmetry of outcomes here that's unfair and feeds into the broader resentment."
Among the most highly placed members of the Bear Stearns diaspora are Michael B. Nierenberg, 48, who's now in charge of Bank of America's global mortgage and securitized-products business; Jeffrey L. Verschleiser, 41, who runs mortgage operations at Goldman Sachs; and Scott Eichel, 36, now Royal Bank of Scotland PLC's global head of securitized products and U.S. credit trading. None of the three men are defendants in mortgage-related lawsuits.
Under Nierenberg, B of A, of Charlotte, N.C., last year was the largest underwriter of repackaged slices of U.S. government-backed mortgage bonds, a business that has thrived as investors look to protect against potential increases in interest rates from record lows.
Eichel, who joined Bear Stearns, of New York, after graduating from Duke University in 1997, has turned RBS in Edinburgh into the second-largest manager of worldwide sales for securitizations without government backing, a reviving business.
In December, Verschleiser's group at Goldman Sachs, of New York, snapped up $6 billion of home loan bonds that State Street Corp. was selling.
Nierenberg, who oversaw adjustable-rate debt at Bear Stearns, and Verschleiser, whose purview included subprime loans, were co-heads of the firm's U.S. mortgage business until they were promoted in late 2007, when Eichel and another trader took the posts.
Their second acts echo those of former executives at Drexel Burnham Lambert Inc., which during the 1980s helped create an explosion in high-yield company bonds that later soured, helping fuel the savings and loan crisis of that era. After Drexel's 1990 collapse, Leon Black, its chief of mergers, founded the buyout giant Apollo Management LP, and Stephen Feinberg, one of the firm's traders, went on to start the private-equity firm Cerberus Capital Management LP.
Other Bear Stearns bond executives landing at rival banks include its last co-heads of global fixed income, Jeffrey Mayer and Craig Overlander, both 51. Mayer now runs the North America region for the securities unit of Deutsche Bank AG, of Frankfurt, whose sales and trading revenue rose 30% last quarter while five big rivals posted an average 8% decline. Overlander is the deputy chief executive officer of Societe Generale's investment bank division for the Americas.
Thomas Marano, 49, global head of mortgages, rates and foreign exchange at Bear Stearns, is now CEO of the mortgage unit of Ally Financial Inc., the auto and home lender rescued by the U.S. government. Randy Reiff, 40, Bear Stearns' head of commercial mortgage finance and commercial mortgage securities, now holds a similar role at Macquarie Group in Australia. Japan's Mitsubishi UFJ Securities USA is relying on Bear Stearns alumni in corporate bonds, including James Gorman, its managing director of high-yield capital markets.
The former Bear Stearns executives all declined to comment directly or through spokesmen for the firms where they now work.
"Most of them landed on their feet," said Alan "Ace" Greenberg, 83, the firm's CEO until 1993. "No question about it — they were talented."
Greenberg came into the office until the end and became a vice chairman emeritus at JPMorgan Chase & Co. after the bank agreed to buy Bear Stearns with Federal Reserve assistance on March 16, 2008. He coined the term "PSD" in a 1981 memo to employees describing Bear Stearns' preference for scrappy recruits who were "poor, smart and had a deep desire to become rich," according to a book he wrote last year.
Bond executives from Lehman Brothers Holdings Inc. have had a different experience, according to Jeanne Branthover. Instead of dispersing widely to banks, many remained with Barclays PLC, which bought the firm's U.S. investment bank after its September 2008 bankruptcy, or joined Nomura Holdings Inc. Bear Stearns' early collapse may have been good luck for its employees, allowing them to land before others began looking, she said.
Before the mortgage securitization market imploded, fueling $2 trillion of losses at the world's largest financial companies, it accounted for the biggest share of business at Bear Stearns' most-profitable division, its fixed-income unit, which generated 45% of total revenue, according to the final report of the Financial Crisis Inquiry Commission.
Bear Stearns underwrote 10%, or $298 billion, of U.S. home loan bonds without government backing sold from 2005 through 2007, second to top-ranked Lehman, according to data from newsletter Inside MBS & ABS. The company issued $167 billion of such debt, which was blamed by the FCIC for fueling the housing bubble.
Buyers and bond insurers now suing over mortgage securities created or sold by Bear Stearns include Ambac Assurance Corp., Allstate Corp., the Federal Home Loan Banks of Pittsburgh and Seattle, Syncora Guarantee Inc., CIFG Assurance North America Inc. and MBIA Insurance Corp.
As a trustee, Wells Fargo & Co. this year sued a Bear Stearns unit now owned by JPMorgan Chase to force it to turn over loan files.
(Ambac and Allstate are "large, sophisticated insurance companies that are trying to blame others for risks they knowingly took and were paid for taking," said Jennifer Zuccarelli, a spokeswoman for JPMorgan Chase in New York. "We do not believe their claims are meritorious and intend to defend Bear vigorously.")
A Securities and Exchange Commission examination report from November 2005 released by the FCIC reveals regulators were concerned about Bear Stearns controls. The SEC questioned the extent to which, in response to agency critiques, "the firm will establish, document, and maintain a system of internal risk-management controls to assist it in managing the legal risks associated with its business activities as is required."
Aside from two former hedge fund managers, who worked in Bear Stearns' asset-management unit, U.S. officials have not sued any of the firm's employees or executives for wrongdoing in relation to the mortgage crisis.
In fact, the rise of former Bear Stearns bond executives shows that other banks agree with Greenberg's assessment that only "some people at the top made some bad mistakes." Greenberg, in his 2010 book "The Rise and Fall of Bear Stearns," blamed Bear Stearns Chairman and CEO James Cayne for his decision to let the firm employ too much leverage. Cayne, 77, in testimony to the FCIC last year, blamed "the market's loss of confidence" in the company, "even though it was unjustified and irrational." Cayne didn't return messages left at his home seeking comment.
Many top Bear Stearns executives left shortly after the firm's purchase by JPMorgan Chase, which attempted to keep at least some of them. It named Mayer and Overlander as vice chairmen of its investment bank before the merger was finished. They left a month later, even after Mayer had reached a verbal agreement to be paid about $27 million in cash and restricted stock if he joined the bank, according to a regulatory filing.
Some may have been turned off by their new employer's culture, which was more "big, corporate and soulless" compared with what had been an "obviously rough and tumble" environment, said William Cohan, author of "House of Cards," a 2009 account of Bear Stearns' collapse. "It couldn't be more different than Bear," said Cohan, who also worked as a banker at JPMorgan Chase.
Some former Bear Stearns employees joined Eichel at RBS and Nierenberg at B of A. Others landed at smaller firms seeking to challenge Wall Street's largest banks.
"They're everywhere," said Paul Norris, a senior portfolio manager at Dwight Asset Management Co. in Burlington, Vt., who said it would be "unfair" to overstate Bear Stearns' role in the crisis. "The bond trading guys that I knew were very talented and very good at their markets, so it's not surprising that they've filtered around."
Ruhi Maker, a lawyer at the Empire Justice Center in Rochester, N.Y., who told Fed officials at a 2004 hearing that investment banks were producing such bad mortgages their survival might be challenged, has a different perspective.
"At a karmic level, I don't begrudge the folks at Bear Stearns jobs," because others in the industry who engaged in at least "a suspension of disbelief" remain employed too, she said. "I'm sure they're smart people and there's money to be made. But I worry that until there is a real price to pay for costing the economy trillions of dollars, and jobs and homes, people are going to keep doing it."
