Bear Stearns Hires Lehman's Lane as Head of Fund Unit (Update4)

Date: Friday, June 29, 2007
Author: Yalman Onaran, Bloomberg

June 29 (Bloomberg) -- Bear Stearns Cos., battered by the near-collapse of two hedge funds that forced the firm to put up $1.6 billion for a bailout, ousted the head of its asset- management division.

Jeffrey Lane, a vice chairman at Lehman Brothers Holdings Inc., will become the chief executive officer at Bear Stearns Asset Management, replacing Richard Marin, the New York-based firm said in a statement today. Lane, 65, has spent four decades on Wall Street and was CEO of Neuberger Berman Inc. until 2003, when Lehman bought the mutual fund company for $3.2 billion.

Chief Executive Officer James E. ``Jimmy'' Cayne is shaking up asset management after bad bets on bonds backed by subprime mortgages led to losses at the two funds and margin calls by rival banks. Investors, concerned that the bailout and collateral damage to the firm's mortgage business would hurt earnings, drove Bear Stearns shares down to the lowest since September.

``We'll dig our way out and emerge stronger,'' Lane said in an interview. ``None of us in this industry can get away unscathed forever. The great ones overcome the problems and move forward.''

Marin, 53, will remain at Bear Stearns as an adviser. Prior to joining the asset-management unit as CEO in 2003, Marin spent 23 years with Bankers Trust Corp. and subsequently became chairman of Deutsche Bank Asset Management.

Shares of Bear Stearns fell $4, or 2.8 percent, to $140 in composite trading on the New York Stock Exchange. They're down 14 percent for the year, the worst performance in the 12-member Amex Securities Broker/Dealer Index.

Restoring Confidence

Bear Stearns earlier this week shifted its head of mortgages, Thomas Marano, temporarily to the asset-management unit to help unwind the funds' investments. Michael Winchell, a Bear Stearns executive who served as chief risk officer in the 1990s, also moved over to assist the funds.

``They have to restore investor confidence in their funds, and they clearly need to shore up their risk-management controls,'' said Mark Batty, an analyst in Philadelphia at PNC Wealth Management, which runs about $75 billion, including shares of Bear Stearns rivals Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley. ``It's not too surprising given the fiasco they had.''

Cayne Shuffles

Cayne, 73, has been making changes elsewhere at Bear Stearns, whose 10 percent decline in second-quarter profit was the worst result on Wall Street.

In November, Bear Stearns's head of prime brokerage and clearing services, Richard Lindsey, left after his division was merged with stock trading and structured equities. Lindsey had joined the firm, the leading prime broker to U.S. hedge funds, in 1999 from the Securities and Exchange Commission.

Leonard Feder quit as co-head of prime brokerage to join Standard Chartered Plc in May, just two months after being appointed to the job. Clearing services, which includes prime brokerage, accounts for about 13 percent of Bear Stearns's revenue.

Lane, a native of Brooklyn, New York, graduated from New York University, served in the U.S. Army during the Vietnam War and received a master's degree in business from Columbia University. His first job on Wall Street was as an airline analyst in the 1960s for Cogan, Berlind, Weill & Levitt, a securities firm co-founded by Sandy Weill, who created Citigroup Inc., and Arthur Levitt, who became SEC chairman.

Not Known as Fixer

He started at the former Shearson Lehman Brothers in 1983 and later worked at Salomon Smith Barney and Travelers Group Inc. before joining Neuberger in 1998.

``He's not known as a fixer of failed things, but he'll have some fixing to do,'' said Geoffrey Bobroff, a mutual fund industry consultant.

Asset management typically accounts for less than 5 percent of Bear Stearns's revenue, compared with 14 percent at Lehman. Lane said he's used to building up money managers. When he joined Neuberger, the firm had $40 billion under management. Now it has about $135 billion, he said.

``I didn't come here to unwind an asset-management company,'' Lane said. ``I came here to grow one. I saw a great opportunity to build on what's already a successful platform, to create for Bear Stearns an outstanding, diversified asset management company.''

The two Bear Stearns hedge funds that melted down had borrowed more than $10 billion and invested heavily in highly rated pieces of collateralized debt obligations, securities that included bonds backed by some of the riskiest home loans. After the funds started to lose money, investors filed for withdrawals. Lenders including Merrill Lynch asked the funds to put up more collateral, demands they couldn't meet.

Marin's Blog

Marin included a picture from the movie ``300'' in a June 23 posting on his personal blog, saying the fictional scene from the battle of Thermopylae ``pretty much sums up my last two weeks trying to defend Sparta against the Persians hordes of Wall Street.''

Lane said he knows Bear Stearns Co-President Warren Spector personally and had talks with the firm on and off during the last five years. The discussions, which initially concerned the potential sale of Neuberger Berman to Bear Stearns, escalated in recent months, he said.

Lehman hired George Walker, a second cousin of President George W. Bush, in May 2006 as head of asset management, including Neuberger Berman. Asked whether that appointment left him sidelined, Lane said he joined Bear Stearns because he missed the ``day-to-day'' responsibilities of running an asset- management business.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net .