Bear Stearns management shake-up could make the investment bank a takeover target, but the possibility of more write-downs and chance of legal entanglements from the subprime mortgage crisis could sideline suitors for now, analysts said last night.
Bear Stearns' president Alan Schwartz yesterday became the company's new chief executive, replacing James Cayne, who was under fire for the company's big mortgage losses and the collapse of two hedge funds.
The appointment of Mr Schwartz, a 57-year-old investment banker, could signal Bear Stearns' willingness to entertain offers, even as its shares hover near four-year lows, some analysts said.
But Mr Schwartz said he plans to return the company to strong profitability and he's not waiting around for a takeover bid to materialize.
"Being acquired is not a strategy," Mr Schwartz said in a telephone interview.
Bear Stearns, however, is reeling after recording its first loss ever in the fourth quarter because of subprime mortgages.
"Periods of instability always create opportunity for those who are willing to do the proper homework and be dispassionate in the risk-versus-reward review," said one investment banker, who declined to be named.
Mr Cayne, who will remain chairman, is yet another heavyweight casualty of the subprime mortgage crisis. Former Citigroup chairman Charles Prince and Merrill Lynch & Co Chairman Stanley O'Neal lost their jobs after their companies had large subprime write-downs.
Bear Stearns, with market capitalization of about $9.1 billion, trades at about 8.5 times fiscal 2008 earnings estimates, less than half the financial sector average of 17.4 times earnings.
"Outsiders may now be attempting to take control of the company. He must fight this off," said Richard Bove, an analyst with Punk Ziegel & Co.
"The firm will be enmeshed in meaningful legal battles for the next 3 to 5 years over its alleged missteps in the credit sector. Management is entrenched and must be overhauled," Mr Bove said.
Mr Schwartz joined Bear Stearns in 1976 after an injury ended his career as a star college pitcher at Duke University.