Jimmy Cayne, the irascible, iconoclastic and penultimate chief executive of the defunct investment bank Bear Stearns, has died aged 87 in Long Branch, New Jersey, after suffering complications from a stroke.
He led the firm as a top executive for 22 years (including 15 as chief executive) through many of its greatest triumphs — among them, as a champion of its 1985 initial public offering, its immense profitability as a powerhouse in underwriting mortgage-backed securities and, finally, into the circle of elite Wall Street investment banks that included both Goldman Sachs and Morgan Stanley — as well as through its many tragic mistakes.
His salesmanship, his cleverness, his sharp elbows and his decision to rarely, if ever, sell a share of Bear Stearns stock earned him, at one point, a fortune of $1bn, making Cayne the first Wall Street chief executive to reach that milestone solely through the ownership of his own firm’s stock.
But Cayne also had terrible blind spots. When, in 1998, the US Federal Reserve, fearful of potential financial contagion, was trying to fashion a rescue plan for the collapsed hedge fund, Long Term Capital Management, Bear Stearns was the only large Wall Street firm not to participate as the Fed was passing the hat for the LTCM bailout.
In failing to pony up, Cayne insisted that as LTCM’s clearing bank, Bear Stearns had already lost enough money on account of the powerful hedge fund. His decision peeved his peers on Wall Street, including Henry Paulson, then chief executive of Goldman.
There are those who still believe Cayne’s impulsiveness came back to bite Bear Stearns a decade later. In March 2008, Paulson, by then US Treasury secretary, initially balked at bailing out Bear Stearns before he, Ben Bernanke, the chair of the Fed, and Tim Geithner, the president of the New York Fed, fashioned a solution that conveyed the broken investment bank into the arms of JPMorgan, for a fraction of what it had once been worth, as a way to avoid a near-certain bankruptcy filing.
Cayne’s other existential mistakes included another decision, in 2007, to have Bear Stearns become the overnight lender to the two affiliated hedge funds that had invested heavily in various mortgage-backed securities, just as other Wall Street banks were retreating from making such short-term, secured loans due to the cracks forming in the market for those securities.
When the two hedge funds were liquidated in July 2007, Bear Stearns seized the collateral that secured its loans, sticking them on its once-pristine balance sheet. As the value of the collateral declined throughout 2007, Bear Stearns had to take huge mark-to-market write-offs, resulting in the first quarterly loss in its history and causing a loss of confidence in Cayne’s management.
That same collateral proved additionally toxic three months later, in March 2008, when Bear’s overnight lenders declined to provide the firm with the short-term secured financing it required daily. The firm was forced to either file for bankruptcy or accede to its fire sale to JPMorgan.
Cayne, who was one of the world’s finest bridge players, hated to lose and he was often incommunicado at fancy bridge tournaments when he should have been managing the firm at Bear’s midtown Manhattan headquarters. He smoked his beloved Cuban cigars almost ceaselessly; they were like an extra digit.
He impulsively fired Warren Spector, the head of the firm’s massive mortgage business, in August 2007, because Spector had the temerity to be out of the office at the same time as Cayne the month before, when they were both competing at a national bridge tournament in Nashville, Tennessee. “I didn’t trust him any more,” after Nashville, Cayne told me, and after Spector had decided to invest another $25m of the firm’s capital into the failing hedge funds.
Unfortunately, Spector took with him a wealth of knowledge about the firm’s mortgage business at the very moment such insight was crucial. Cayne failed to strike a deal for new equity for Bear Stearns during the summer and fall of 2007 — he had been negotiating with Citic Securities, in China — when the new capital might have saved the firm from its terrible fate.
James E Cayne, the only son of Maurice, a patent attorney, and wife Jean was born on February 14, 1934. He grew up in the Chicago suburb of Evanston, Illinois, and attended Purdue University but failed to graduate because he refused to retake a French class he had failed. His parents were incredulous and kicked him out of the house.
“I don’t want to read and absorb,” he once told me. “I hear and I absorb.” He ran through a series of jobs — court stenographer for the US military in Japan; cab driver in Chicago; and as a first-rate salesman of photocopiers, adding machines and scrap metal, a business owned by the family of his first wife; and later, when he got to Wall Street, of municipal bonds. He aspired to be a bookie.
But his real gift, along with blarney, was playing bridge, the card game that once upon a time was how a kid could get ahead on Wall Street, if he had the goods. And Jimmy Cayne had the goods.
At Purdue, when he should have been studying, he played bridge. His first marriage fell apart because of his bridge playing. In 1961, he and a partner won the Midwest Regional Bridge tournament. He was 27 years old. In 1964, he moved to New York City to try to make it as a professional bridge player.
Playing bridge allowed him to meet many Wall Street bigwigs, including Lawrence Wien and Larry Tisch. In 1966, he won his first professional tournament. He met his second wife, Patricia Denner, at a bridge tournament. “It was love at first sight,” he told me. He is survived by Denner, his daughters Jennice and Alison, and seven grandchildren.
He got his first job at Bear Stearns, as a municipal bond salesman, because of his bridge prowess. In 1969, Alan “Ace” Greenberg, who preceded Cayne as the firm’s chief executive, fell hard for Cayne when he learned he was a world-class bridge player.
How good was he? Greenberg wondered. “If you study bridge the rest of your life, if you play with the best partners and you achieve your potential, you will never play bridge like I play bridge,” Cayne told him. Greenberg hired him on the spot.
During my many hours of interviews with Cayne for what became House of Cards, my 2009 book about the collapse of Bear Stearns, I once asked him what it felt like to lose $1bn. In those days, that kind of massive personal financial loss was unusual. After the deal with JPMorgan was agreed, over his vociferous objections, he sold his Bear Stearns shares for around $61m.
He said he did not care about the money he had lost, boasting that he still had a fortune of more than $400m, what with some smart investments and the cash compensation that Bear had paid him over the years.
“The only people [who] are going to suffer are my heirs, not me,” he explained. “Because when you have $1.6bn and you lose $1bn, you’re not exactly, like, crippled, right?
The writer is author of ‘House of Cards: A Tale of Hubris and Wretched Excess on Wall Street’ and a founding partner of @Pucknews