Jimmy Cayne is now not a family name on Wall Street, his fame darkened by the final couple of years as CEO of the ill-fated funding financial institution Bear Stearns.
However Cayne’s story is much extra advanced. It’s one among unimaginable achievement as nicely, and much more, it must be studied by enterprise colleges as a parable of how enterprise leaders can get stuff so proper for thus lengthy, solely to be outlined by a few dangerous and avoidable errors.
By shining a light-weight on what Cayne did proper and incorrect, perhaps we will educate not simply the brand new class of CEOs, however all these know-it-all meme-stock merchants — who suppose they’re infallible as a result of they’ve made a couple of bucks throughout this lengthy bull market — that failure is at all times lurking across the nook.
Cayne died Tuesday on the age of 87. Do a Google search and you’ll find numerous tales blaming him for the risk-taking that doomed Bear Stearns within the preliminary levels of the 2008 financial crisis. His bridge taking part in whereas Bear was burning; his more-than-occasional penchant to smoke some pot.
All of this, based mostly on my information, was true to some extent, however shouldn’t be defining. Duty for Bear’s risk-taking in the end falls on his shoulders, however the doomed methods had been additionally carried out by individuals who additionally had been a part of Bear’s administration staff.
Bailouts galore in 2008
Bear was definitely not the one agency to succumb to threat. Each one among them, besides perhaps JPMorgan below the regular hand of Jamie Dimon, wanted a bailout in 2008. And sure, Jimmy performed bridge and smoked some weed, however I don’t recall any CEO being chained to his desk besides when the proverbial crap was hitting the fan. As for the marijuana, a detailed good friend of Cayne’s instructed me it was to melt the signs of a medical situation. I by no means noticed it influence his skill to work and I knew him higher than anybody on the beat.
Amid all these titillating snippets, it’s simple to grasp why historical past has been unkind and unfair to Cayne’s legacy. He was a school dropout who bought sheet metallic and took a flip as knowledgeable bridge participant after which went on to promote municipal bonds. His love of bridge and vaulting ambition bought Cayne a gathering with Ace Greenberg, a inventory dealer and threat supervisor of huge talent, and soon-to-be CEO of Bear Steans.
Greenberg was additionally a supervisor who appeared for recruits that had what he referred to as “PSD” — they had been Poor (by Wall Avenue requirements), Good and deeply Decided. Cayne grew to become the template for the time period.
After all, it didn’t harm that Greenberg was additionally an avid bridge participant, although not at Cayne’s degree. That talent of technique and studying individuals’s intentions quickly introduced Cayne each success and development at Bear Stearns. He reeled in a number of the agency’s largest purchasers. Within the mid-Nineteen Seventies, when NYC was on the verge of bankruptcy, huge banks keep away from metropolis debt. Cayne rolled the cube adroitly that NYC, dwelling of Wall Avenue and worldwide finance, would recuperate irrespective of how dangerous its management had change into.
He started making markets in metropolis bonds. Management modified; town’s price range improved. Cayne made a fortune for Bear and himself.
He was additionally on the quick observe to changing into CEO, which he did in 1993, changing Ace, who remained as chairman. Their relationship, which began out as virtually paternal, had frayed. However the Cayne-Greenberg staff produced a juggernaut; Bear Stearns’ stock exploded. It was one among Wall Avenue’s smallest corporations, however recurrently bested the largest in earnings energy.
Exceptional, contemplating the best way it ended for Bear, that the agency stayed out of hassle. I credit score the bridge participant in Cayne. When the hedge fund Lengthy-Time period Capital imploded in 1998, Bear was the one main buying and selling store untouched. Cayne didn’t like its esoteric investments in bizarre bonds. Bear additionally prevented the excesses of the dotcom period as a result of Cayne didn’t wish to spend huge bucks on analysts touting stuff like Pets.com.
Reign as an oracle
By 2006, Cayne was a billionaire based mostly on his holdings of Bear Stearns inventory. He had assumed an exalted standing on Wall Avenue. Rival CEOs started looking for his recommendation as he distributed snarky bon mots as in the event that they had been pearls of Wall Avenue knowledge.
However he additionally started to imagine his personal BS that his previous efficiency assured future success. That Greenberg had traded by means of some tough markets was more and more ignored by the brand new regime.
Cayne rebuffed makes an attempt by Dimon to look into shopping for Bear. Cayne’s rationale to me on the time: Dimon couldn’t afford what Bear was actually price.
Cayne was at all times one of many highest paid execs on Wall Avenue, however his pay reached an astronomical $40 million for 2006, the verify delivered in 2007. That’s when the agency’s excruciating descent started, with the implosion of two of its hedge funds tied to the deteriorating mortgage-bond market.
By early 2008, Cayne was out as CEO, and by March of that 12 months, Bear was pressured to promote out to JPM at a ultimate worth of $10 per share. When Dimon was snooping round years earlier, its shares traded round $150 or extra.
It’d sound trite, however the perfect CEOs be taught from their failures small and enormous. Jamie Dimon being booted by Sandy Weill at Citigroup undoubtedly made him a greater CEO years later. Larry Fink, as a younger bond dealer within the Nineteen Eighties, misplaced a ton of cash however went on to change into perhaps Wall Avenue’s greatest threat supervisor as CEO of the BlackRock money-management empire.
Each had been laid low by failures sufficient to grasp they had been fallible, and knew they had been one commerce away from ignominy. I by no means bought that sense from Jimmy, which was his undoing. Meme-stock investors ought to take be aware.