Monday, August 06, 2007

Bear Stearns co-president resigns

Bear Stearns co-president resigns
By David Wighton in New York
Copyright The Financial Times Limited 2007
Published: August 5 2007 19:43 | Last updated: August 5 2007 23:24

The turmoil in the US mortgage market claimed its latest top level victim on Sunday when Warren Spector resigned as co-president of Bear Stearns, six weeks after the collapse of two mortgage hedge funds it managed triggered a crisis in the broader credit markets.

Mr Spector, 49, who has long been seen as the likely successor to Jimmy Cayne, chairman and chief executive, resigned at a meeting of the Wall Street bank’s board on Sunday.

Head of all Bears’ capital markets operations, Mr Spector was also responsible for the asset management arm that ran the hedge funds. Bear said that Alan Schwartz, previously co-president, will become sole president and Sam Molinaro, will become chief operating officer in addition to chief financial officer.

On Friday, Mr Molinaro’s comments on a conference call caused a sharp sell-off in US stocks, setting the stage for a nervous start to the week for world markets on Monday.

US financial stocks were particularly badly hit on Friday, prompting calls for the Federal Reserve to intervene by cutting interest rates. At its meeting on Tuesday, some economists expect the Fed to acknowledge the risk that weakness in the US housing market could spread to the broader economy.

The Fed is expected to leave rates unchanged but US Treasury yields tumbled on Friday as the futures market priced in a strong chance of two cuts in the Fed Funds rate by the end of the year.

Investors will be looking nervously for more corporate victims of the slump in US subprime mortgage securities caused by increasing late payments on home loans.

In a statement to be released on Monday, Natixis, the French investment bank whose shares fell almost 10 per cent on Friday, is expected to seek to ease concerns about its exposure to US mortgages by reiterating its full-year profits guidance.

Natixis has a small stake in IKB, the German bank bailed out by the government last week after suffering losses on US subprime loans.

Some observers said investors had overreacted to Bear Stearns’ comments on Friday, particularly Mr Molinaro’s statement ruling out share buy-backs to preserve “liquidity”.

Bear said it had been profitable in June and July, in spite of markdown on its holdings of mortgage bonds and other securities. It also detailed the steps it had made – in common with other Wall Street banks – to bolster its cash holdings and borrowing facilities in recent months.

The turmoil in the credit markets was partly triggered by the collapse six weeks ago of two mortgage hedge funds run by Bear Stearns. Mr Spector, seen as the most likely successor to Mr Cayne, was also responsible for the asset management arm that ran the funds.


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