In 2007, Bear Stearns CEO Jimmy Cayne Was Worth Over $1 Billion. Guess How Much He Sold His Stock For In 2008…

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Former Bear Stearns CEO Jimmy Cayne died this week on the age of 87. If Celeb Web Worth existed in 2007, we positively would have written an article praising the unbelievable rags to riches story of Bear Stearns CEO Jimmy Cayne. Again then, Jimmy was seen as a Wall Road rock star in a pair alternative ways.

First off, by way of private wealth he was completely a rock star. Cayne, whose profession had very humble beginnings, was the primary Wall Road CEO to amass a private fairness stake that was value over $1 billion {dollars}.

Secondly, by way of partying, Jimmy additionally had some very rock star-esque habits. For years, rumors floated all through the trade that this billionaire finance CEO was a heavy marijuana consumer. Heavy sufficient that for a few years there was a whole part titled “Drug Use” on Jimmy’s Wikipedia web page. Apparently, that part was completely erased sooner or later in the previous couple of years.

And at last, throughout these good years, Jimmy was a Wall Road darling who may jet off to a play Bridge with Warren Buffett and Invoice Gates on a second’s discover.

An terrible lot has occurred on the planet since 2007. Clearly, Bear Stearns now not exists and Jimmy Cayne is sadly remembered as one of many main figures who precipitated the 2008 Nice Recession. However maybe essentially the most surprising a part of Jimmy’s story is what occurred to that $1 billion Bear Stearns stake over a matter of weeks in March of 2008.

James Cayne/Win McNamee/Getty Photos

Aspect Private Anecdote

Again in 2005, I used to be a senior in school wrapping up a finance diploma with very common grades and a resume that principally consisted of 1 summer time internship at Comedy Central. After being rejected from 20 totally different finance associated jobs, I someway landed an interview at Bear Stearns. This is able to have been an absolute dream job for me on the time. Beginning wage would have been $75,000. That is the equal of providing a 21 12 months previous (with mediocre grades and principally no expertise) a beginning wage of $91,000 in the present day. And even if I lived in Washington D.C., someway Bear’s journey division did not even blink at spending $2,300 on a final minute aircraft ticket to fly me as much as New York Metropolis. I spent a whole morning being interviewed by a half dozen totally different folks after which the HR particular person took me out to a very fancy lunch the place I ordered a steak sandwich that value $28.

After getting rejected, I did not have another alternatives in New York so I ended up transferring to LA and received a job at an web startup that paid me $7 an hour for about two years. At this cut-off date, there is a 99% probability that whoever received that job at Bear Stearns in my place, was unceremoniously laid off amid the worldwide monetary meltdown. This poor particular person most probably then needed to undergo a a number of hellish years making an attempt to rebuild their profession (or abandon finance fully and begin from scratch). In the meantime, I used to be nonetheless making beneath $28k a 12 months however I used to be just some months away from buying the area “www.celebnetworth.com”. And I used to be a just some years from with the ability to stop my job at that web firm to run CNW full time. The purpose of this story is that whoever at Bear Stearns again in 2005 determined I wasn’t the proper match for his or her firm did me an unbelievably huge favor. So take it from me, getting rejected out of your dream job can find yourself being the largest blessing you will ever obtain. Anyhow, again to Jimmy Cayne.

Jimmy Cayne – From School Dropout to Billionaire CEO

James Cayne was born on February 14, 1934. He grew up in Evanston, Illinois. He briefly attended Purdue College, however dropped out and subsequently joined the Military. His first job after the Military was as a touring photocopier salesman. He additionally frolicked promoting scrap metallic.

In his free time, Jimmy beloved to play the cardboard recreation bridge. In the late Nineteen Sixties he stop his job in gross sales and moved to New York Metropolis to develop into a full-time bridge participant. Apparently that is a factor. Or not less than it was within the Nineteen Sixties.

On the bridge circuit (apparently that is a factor too), Jimmy would periodically run into a person named Alan Greenberg, higher generally known as Ace Greenberg. When Ace wasn’t dabbling on the bridge circuit, he was busy working because the CEO of Bear Stearns. After bumping into one another a couple of instances, Ace was impressed by Jimmy. They grew to become quick associates, and in 1969 Ace employed Jimmy to be a stockbroker at Bear Stearns.

Over the following decade, Jimmy proved to an especially proficient dealer and supervisor regardless of not having a proper schooling or background in finance. He grew to become a accomplice in 1973 and by 1985, Jimmy had risen excessive sufficient to be named President of the corporate. In 1993, Ace Greenberg stepped down as CEO and handed the reigns over to Jimmy.

Jimmy Makes A Fortune

Below Ace Greenberg’s management, Bear Stearns was generally known as a reasonably conservative firm that averted threat and leverage. Below Jimmy’s management, Bear Stearns elevated its leverage ratio from a barely any to 35 to 1. Meaning for each $1 Bear truly owned, it had borrowed a further $35. The corporate dove head first into the newly rising (and extremely dangerous) derivatives markets and launched a sequence of aggressive hedge funds.

The technique labored amazingly effectively, for some time. Bear’s inventory value soared and Jimmy earned $40 million in complete compensation in 2006. Extra importantly, Jimmy additionally managed to place himself within the place to amass a 5% stake in Bear Stearns. He bought a $30 million NYC residence and traveled almost each weekend by helicopter or non-public jet to play golf and bridge at luxurious resorts.

In January 2007, Bear’s inventory value hit an all time excessive of $172 a share. At this degree, Jimmy Cayne’s private fairness stake was value $1 billion. As we talked about earlier, Jimmy was the primary Wall Road CEO to develop into a billionaire from his fairness stake. Not unhealthy for a man who did not go to varsity and whose resume principally consisted of 1) Photocopier salesman and a pair of) Newbie bridge participant.

Drug Use

All through these high-flying days, Jimmy was allegedly a heavy consumer of marijuana. He has all the time denied these rumors. Years later, after their relationship soured, Ace Greenberg publicly described his former protegee as a “dope smoking megalomaniac“.

In a 2009 ebook written by CNBC reporter Charlie Gasparino, Jimmy was additionally described as a “self-identified cocaine consumer“. And under is an excerpt from Wall Road Journal reporter Kate Kelly’s 2010 ebook “Road Fighters: The Final 72 Hours of Bear Stearns, the Hardest Agency on Wall Road”:

He favored to smoke marijuana. This pastime was well-known to some shut associates, who had seen him smoking in his Park Avenue residence. It had additionally come to the eye of a few of the regulars on the bridge circuit, the place Cayne was identified to retire to his room after the day’s play and tuck into his pot stash as a solution to loosen up… Cayne’s marijuana use was [also] found by a bridge-circuit common at a Memphis Doubletree. After the day’s competitors, he invited a fellow participant and a girl to hitch him for a smoke in a foyer males’s room.

Bear Stearns Collapse

The primary signal that Bear Stearns was in bother (and one of many earliest indicators that the entire monetary sector was standing on shaky floor), occurred in July of 2007. FYI, that is over a 12 months earlier than the total monetary meltdown would start to unravel. In June 2007, two of Bear Stearn’s extremely leveraged hedge funds failed. Each funds have been reportedly closely invested derivatives known as collateralized debt obligations that had a big publicity to subprime housing loans. Oh and by the best way, whereas these two funds have been collapsing, Jimmy was reportedly unreachable as a result of he was in Nashville at a 10-day bridge match. When Jimmy performed golf or bridge, he didn’t carry a mobile phone or e mail machine.

Losses from the collapse of those two hedge funds precipitated Bear’s income to drop 61%. In November 2007, Bear introduced that it was writing down $1.2 billion value of mortgage-related investments and can be posting its first annual loss within the firm’s 83 years of existence. Normal & Poor’s subsequently lowered Bear’s credit standing from AA to A, which was surprising on the time. By February of 2008, Bear’s inventory had been crushed down from that $172 excessive of January 2007 to $93 a share.

Sadly, this was simply the tip of the iceberg. It could quickly be revealed that Bear Stearns was sitting on $40 billion value of mortgage bonds that have been principally nugatory. Quickly Wall Road started to fret that Bear didn’t have sufficient liquidity to cowl its quick time period obligations. This rapidly was a vicious circle of unfavorable rumors and supposed impending doom.

On February 27, 2008, Bear Stearns’ inventory value closed at $85.88 per share. On March 12, 2008 the inventory closed at $68.58 per share. Rumors have been now flying that the corporate had a really severe short-term money downside. On March 14, Bear admits publicly that its “liquidity place has deteriorated dramatically within the final 24 hours”. The inventory closed on March 14 down 56% to $30.85.

March 14th was a Friday. In some unspecified time in the future over that weekend, Bear’s government staff led by newly appointed CEO Alan Schwartz (Jimmy Cayne had been relegated to Chairman by now), realized that the corporate now not had sufficient money to function. They have been right down to their final $3 billion, with debt obligations exponentially greater, and rising quick. With out a authorities bailout or an acquisition, the corporate can be compelled to file for chapter inside hours.

March sixteenth was a Sunday. In some unspecified time in the future throughout Sunday night, Bear’s government staff struck a deal to promote all the firm to JP Morgan. Let me remind you that in January 2007, Bear Stearns hit an all-time excessive inventory value of $172. What value per share did Bear promote to JP Morgan for?

$2

That is a 98.9% drop from $172 a share in January 2007. It was a 97% drop from only one month earlier.

At that value, Jimmy’s $1 billion stake was value $11 million. On March 24, JP Morgan agreed to up their buy value to $10 per share, equating to a complete buy value of $1.2 billion.

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Jimmy Cayne Loses A Fortune

On March 26, 2008, Jimmy bought his whole stake in Bear Stearns, which roughly one 12 months earlier had been value $1 billion {dollars}, for a grand complete of: $61 million. That is earlier than any taxes and costs have been taken out.

On the intense aspect for Jimmy, throughout his years at Bear he obtained a reported $90 million in complete money compensation. He additionally reportedly bought round $300 million value of Bear inventory over time and managed to accumulate a number of beneficial actual property belongings. However his status was positively damaged ceaselessly. And I do not suppose one can ever recover from the sensation that $1 billion evaporated by your fingers in a matter of days.

Jimmy is at the moment ranked #35 on the American Contract Bridge League’s checklist of one of the best gamers of the last decade. He was additionally listed as one in all Time Journal’s “25 Folks to Blame for the Monetary Disaster”. CNBC positioned him at #4 on its checklist of the 20 “Worst CEOs of All Time”.


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