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BEAR STEARNS
William Ryback
Case Study on BEAR STEARNS
Copyright by the Toronto Leadership Centre. This case was prepared exclusively for a class discussion at a Banking, Insurance or Securities session offered by the Toronto Centre. Information has been summarized and should not be regarded as complete or accurate in every detail. The text should be considered as class exercise material and in no way be used to reach conclusions about the nature or behaviour of any of the persons or institutions mentioned.. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form without the permission of the Toronto Leadership Centre for Financial Sector Supervision. Sources: This document is based on information that was in the public domain at the times mentioned or which became public after the resolution of the issues. It does not include information confidential to the financial institution involved.
1
BEAR STEARNS
William Ryback
TABLE OF CONTENTS
1. INTRODUCTION a. Overview b Key Issues c Learning Objectives 3 4 4 4
d Core Principles 2. CASE NARRATIVE a The Company
5 5 7 8 9
b The culture c The Problem
d The Regulators e The Last Week
2
BEAR STEARNS INTRODUCTION Overview
William Ryback
Bear Stearns was a large investment bank, securities trader, and brokerage firm operating globally with headquarters in New York. The firm had been in operation for 85 years when its outsized position in subprime mortgages raised questions from investors, clients, and counterparties about the bank’s balance sheet and the quality of its assets. A failed hedge fund sponsored by a subsidiary of the bank in 2007 had brought unwanted questions about subprime loans in general in an increasingly wary market. Bear Stearns had a reputation as an aggressive trading bank willing to take risks. The firm was proud of its reputation as a company run by employees with a “blue collar”
William Ryback
Case Study on BEAR STEARNS
Copyright by the Toronto Leadership Centre. This case was prepared exclusively for a class discussion at a Banking, Insurance or Securities session offered by the Toronto Centre. Information has been summarized and should not be regarded as complete or accurate in every detail. The text should be considered as class exercise material and in no way be used to reach conclusions about the nature or behaviour of any of the persons or institutions mentioned.. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form without the permission of the Toronto Leadership Centre for Financial Sector Supervision. Sources: This document is based on information that was in the public domain at the times mentioned or which became public after the resolution of the issues. It does not include information confidential to the financial institution involved.
1
BEAR STEARNS
William Ryback
TABLE OF CONTENTS
1. INTRODUCTION a. Overview b Key Issues c Learning Objectives 3 4 4 4
d Core Principles 2. CASE NARRATIVE a The Company
5 5 7 8 9
b The culture c The Problem
d The Regulators e The Last Week
2
BEAR STEARNS INTRODUCTION Overview
William Ryback
Bear Stearns was a large investment bank, securities trader, and brokerage firm operating globally with headquarters in New York. The firm had been in operation for 85 years when its outsized position in subprime mortgages raised questions from investors, clients, and counterparties about the bank’s balance sheet and the quality of its assets. A failed hedge fund sponsored by a subsidiary of the bank in 2007 had brought unwanted questions about subprime loans in general in an increasingly wary market. Bear Stearns had a reputation as an aggressive trading bank willing to take risks. The firm was proud of its reputation as a company run by employees with a “blue collar”