Opening Bell: Uncle Jimmy’s Fire Sale

Bear’s Cayne brought to his knees; the sticky rice market; pissed-off homeowners; etc.

The Wall Street Journal and the Financial Times both report that our beloved national uncle, Jimmy “Nero” Cayne, has sold his entire stake in Bear Stearns for about $61 million. It’s a long way down for someone whose shares just last year were worth more than $1 billion.

Cayne, who will go down in Wall Street history for fiddling with bridge cards while Bear burned two weeks ago (not to mention last summer, when cracks first started to appear), apparently stepped away from the table long enough to sell his 5.6 million shares at $10.84 apiece, signaling that he thinks JPMorgan Chase won’t have to up its offer again.

A place at the Plaza

The FT says on page one that Cayne had plenty of opportunities to sell when Bear shares were trading at more than $170 last year. Now, the WSJ on C1 says, it seems Jimmy is having a little liquidity crisis of his own:

But compensation experts and associates of the Bear Stearns chairman say his stock sale probably has more to do with personal economics than with protesting the deal. One reason he may have wanted to free up some cash: a deal he and his wife recently closed to purchase new living space in New York’s Plaza Hotel for about $26 million.

“I would bet this is 100% driven by his own financial planning and needs,” said Alan Johnson, a New York compensation consultant. “He kind of went down with the ship and is jumping in a lifeboat.”

We’re not told by any of the papers how many shares Cayne sold over the years at what price—something that would be easy enough, if time consuming, to calculate from public filings—nor do we learn how much he earned in cash over the years. The New York Times says on C1 “whether the stock was flying high, as it was early last year, at $171, or plummeting, as it did in recent months, Mr. Cayne kept the vast bulk of his 5.6 million shares.”

It seems he’d have had to keep the “vast bulk” of his 5.6 million shares in order to sell 5.6 million shares yesterday, no?

The NYT reports that Chairman Cayne still isn’t actually, like, working too hard—he still comes into work, but isn’t involved much in figuring out what to do with the remainder of the company and its employees.

That doesn’t mean he isn’t taking this hard. The “brash executive who, with his ever-present cigar and suspender-snapping ways, and Friday golf outings in the summer, epitomized the classic, if outdated, picture of the Wall Street chieftain” is now the company “whipping boy” who’s been brought to his knees in more than one sense of the phrase.

In the past weeks, together with his wife, Patricia Cayne, who is a student of Jewish religious traditions, Mr. Cayne has spent considerable time searching for comparable events in religious history to see what lessons can be learned from the collapse of his firm, said a person who has spoken to him recently.

Ignorance is bridge (and golf)

Michael Lewis, in a column this week on Bloomberg, makes the case that CEOs like Cayne and Merrill Lynch’s Stan O’Neal play bridge and golf while their firms fold “not because they don’t care their firms are collapsing, but because they don’t know that their firms are collapsing.” He says that’s because of the incredibly complicated products that Wall Street has been shoveling out the door since Salomon Brothers showed how lucrative financial innovation could be in the 1980s.

This brings Lewis to an interesting conclusion:

At this point you have to at least wonder if Wall Street firms should be public companies. Their complexity renders them inherently opaque. Investors are right now waking up to this fact: They will demand to be paid for opacity, and also for volatility.

The firms have been revealed to be so treacherous in bad times that the only way they survive as public companies is to make outrageously huge sums in good times. That is, as public companies, to be economically viable they are likely to be socially problematic.

If they aren’t about to go under, they are making so much money that everyone else hates them.
Something is about to give.

Rice wars

The FT fronts news of an astonishing jump in the world’s most common food, raising “Fears of unrest across Asia as rice price surges 30% in a day” as the salmon sheet says in its headline.

The inflation that’s stalking the world’s commodity prices caused Egypt to ban rice exports and the Philippines to say it would have to buy a huge amount on the world markets, which are already at their lowest supply point in more than thirty years, because it is far short of its needs. India, Vietnam, and Cambodia are also getting all protectionist on their rice trade.

The paper notes that the food is a staple for 2.5 billion people in Asia, but also in other parts of the globe:

Rice is also a staple in Africa, particularly for small countries such as Cameroon, Burkina Faso and Senegal that have already suffered social unrest because of high food prices.

The cost of rice has more than doubled since January. That’s when prices started ticking up for rice even though those for corn, wheat, and other foods had been rising since 2006, though the FT doesn’t tell us why that is.

Americans on the couch

NYT’s columnist Floyd Norris delves into the other crisis—in consumer confidence— (a story we think hasn’t been getting nearly enough ink) and finds that by some measures consumers are more pessimistic than they’ve been in the four decades records have been kept. He blames that on the belief that “America is no longer a leader, or perhaps even competent, in one area in which we believed it excelled”—finance.

In December 1973 the Conference Board’s consumer expectations index hit the lowest level ever, 45.2. The reading disclosed this week, 47.9, ranks second.

In some ways, there is even less optimism now than there was then. A lower proportion of those surveyed expect business conditions to improve within six months, and the percentage of people who think their own income will rise is much lower now than it was then. Only in jobs is there more optimism now, and the difference is small.

Great rates for ‘crap’

The WSJ reports on A2 that Wall Street isn’t scrambling for the Fed’s new (and unprecedented) direct-loan program as desperately as many thought it would. The paper says that could be an indication that cash problems on the Street aren’t as severe as markets feared just a week ago.

While Reuters agrees with the Journal’s take, The Associated Press reaches the opposite conclusion, reporting that “demand was high.”

The WSJ also says a separate lending program saw only “modest increase in demand”, though it looks to us like the amount borrowed jumped by nearly 30 percent in a week, to $37 billion.

The programs essentially allow Wall Street to put up their sketchiest assets as collateral to borrow short-term from the Fed. Short-term loans grease the wheels of capitalism and markets have seized up in recent months as lenders have feared for the solvency of those to whom they lend.

The WSJ has another story on C2 that says the results of the auction are a positive sign for the health of the financial industry.

Bond traders and strategists said the auction result may inject some optimism back into the markets, lessening worries of a deeper credit crunch that could push investors to further reprice risk.

“It means banks are financing all the crap at a great rate,” said Michael Franzese, head of government bond trading in New York at Standard Chartered. “This should open up some cash and ease some of the credit crunch.”

Trashing the house

Michael M. Phillips, the WSJ’s Renaissance man, reports on A1 that banks and mortgage companies are paying homeowners not to trash their about-to-be-foreclosed-upon homes. The “trash-out” phenomenon has been growing in the last several months along with the delinquency rate.

These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have “substantial” damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.

The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly.

Lots of anger out there, which leads us to our Violently Pissed-Off Homeowner Quote of the Day, as seen by a mild-mannered Realtor:

“When you’re losing your dream, and you’re paying all this money to it…and you’re hoping that it’s going to go up, and you’re going to make 100 grand like everybody else did, and it doesn’t happen—you know, people get upset,” says Joe Kraemer, a broker with Century 21 Advantage Gold who deals in foreclosed homes.

Unwanted vets

The Los Angeles Times reports that veterans are having a hard time finding work, despite all the military promises that their training and experience has big real-world value:

Some return to civilian life with physical injuries and psychological damage. Many come back to families that need their financial support, but find that the skills they gained in the military don’t carry over to the current job market. Their only options are unstable, entry-level positions.

Recent research by the Department of Veterans Affairs suggests that today’s young veterans need more help making the transition to civilian jobs, given that 23% of veterans in 2005 were out of the workforce, up from 10% in 2000.


Rumors continued to dog Wall Street yesterday, with Lehman Brothers falling 9 percent on whispers that it faces a Bear Stearns-style run on the bank, Reuters says. That helped send the Dow down 120 points.

Right in time for Lehman, Bloomberg reports this morning that a Citigroup analyst upgraded Lehman to a “buy”, saying it has plenty of cash.

Corporate losses

In economic news, the FT reports that corporate profits fell 3.3 percent in the fourth quarter, a number it calls “striking because the data did not include the billions of dollars in writedowns and loan loss provisions that companies have taken as a result of the subprime mortgage problems.” The losses were well above the 0.1 percent downturn predicted by economists.

The paper also notes that full-year economic growth in the U.S. was 2.2 percent for 2007, the lowest since 2002.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.