The 22nd-floor conference room was packed tight. Stacks of documents and crusty takeout cartons littered the table. On Friday night, March 14, a team of Bear Stearns employees from the $1 billion Global Clearing division holed up in the firm’s Madison Avenue headquarters analyzing their operations until midnight. On different floors, other Bear employees worked to assemble financial information that could tell them how sick the firm really was. The greatest crisis in Bear’s 85-year history was careering out of control. In just five days, Bear’s stock had plunged amid rumors that the firm was out of cash. Perception is reality in business. The market had eviscerated the company, taking half of Bear’s value despite repeated assurances from Bear’s CEO, Alan Schwartz, that the company was in good shape, with a cushion of $17 billion in cash. With Bear on the brink of bankruptcy, JPMorgan Chase and the Federal Reserve extended a financial lifeline and prepared to buy Bear outright.
At the start of the week, Bear’s bankers and traders had begun to sense that something wasn’t right. Rumors of a looming “liquidity crisis,” in Wall Street parlance, spread through the financial system. “We started hearing information of certain clients getting skittish. It started with the small things,” one Bear staffer recalled. By Wednesday, with the stock down almost 20 percent and some banks refusing to trade with Bear, Schwartz, who was attending a conference in Palm Beach, Florida, went on CNBC to stanch the rumors. But his pronouncements had little effect.
Bear’s employees surely knew they were writing the storied bank’s obituary as the weekend dragged on. At Bear’s offices, bankers from JPMorgan stalked the halls, picking through the remains of Bear’s business divisions. Late into Sunday afternoon, Bear’s board, led by chairman Jimmy Cayne, feverishly negotiated the sale with JPMorgan’s CEO, James Dimon, and the Fed. Bear staffers, nearly all of whom had significant wealth tied up in the firm’s cratered stock, were left to wonder just how much Bear would fetch. Fifteen dollars a share? Maybe $20? Only a week before, the stock had been as high as $70, and last January, it peaked at $171. After all, their Madison Avenue skyscraper was reportedly worth more than $1 billion, and the company was projected to earn a profit in the first quarter. The sale to JPMorgan was going to be bad, but maybe they could get out of this with something. Anything.
Around dinnertime on Sunday, March 16, the sale was announced. Up on the 22nd floor, a pall descended over the conference room when the final terms popped up on Bloomberg Television. Bear Stearns, a firm with 14,000 employees, a constellation of offices around the globe, and profit of $2 billion, was being sold to JPMorgan for $2 per share—less than the price of a latte.
“It has got to be a typo,” one senior manager gasped. But it wasn’t.
Shortly after 7 a.m. on Monday, dazed Bear staffers arrived at the Madison Avenue headquarters to absorb the news of their firm’s implosion. They were instructed to call their clients and to begin the transition to be sold to JPMorgan. In the halls, staffers glared at people they didn’t recognize, wondering if they were JPMorgan bankers admiring their new prize. “I think JPMorgan should be rightly worried about stepping foot in the building until people cool down,” one employee said. Down in the lobby, a gallery of onlookers assembled. Real-estate brokers circled like vultures, handing out cards to potential customers who might need to liquidate their holdings. Tabloid reporters hounded employees for comment. One person taped a $2 bill to the front door. What at first felt like a funeral quickly transformed into a Manhattan spectacle, the operatic finale to an easy-money era.
Of course, banking is an up-and-down game. Earning the big money carries the risk that something might go disastrously wrong—“the nuclear scenario,” as one staffer put it. But even by Wall Street standards, the sudden and violent death of Bear Stearns was psychologically unfathomable. “We didn’t think it would ever be possible,” one senior banker said. Bankers who held down million-dollar-a-year jobs had their yuppie union cards stripped away overnight, and the enormity of the loss was hard to swallow. “I lost a lot of money,” one Bear staffer said on the evening of March 18. “It has felt like an Enron, but without the fraud.”
A pillar of Bear’s culture has always been the loyalty of its employees, who invested heavily in the company’s stock. Staffers owned about 30 percent of the company’s shares. One staffer noted that after the crash of 1929, Bear famously didn’t lay off a single employee. “Headhunters called me all the time,” one Bear staffer said on March 19. “I never called them back. I wanted to build a career here. It’s sad to see that go away.”