Reading the comments of Bear Stearns
Now to be fair, Bear has hardly had its arms cut off. But at this point, it's a bit hard to believe Cayne's suggestion that the industry themes that S&P cited won't have a disproportionate effect on Bear versus other investment banks like JPMorgan Chase
So far, Bear's problems have come from its hedge funds. The problems could be compared to a nasty rash -- sure, it's been uncomfortable and it's had the effect of keeping people at a distance from the company. The million-dollar question, though, is whether this rash is just a rash, or whether it's an outward symptom of a larger, looming, systemic problem.
Even in the best-case scenario -- where it really is just the hedge funds with heavy losses -- the ramifications will still likely be painful. To do what they do best, investment banks rely on the ability to draw on borrowed capital. As might be expected, events such as hedge funds heading into bankruptcy or an outlook change from S&P tend to make it incrementally harder (or just more expensive) to find capital to borrow.
As often happens when a company has a very public fall from grace, heads are rolling. On Sunday, the firm announced that co-president and co-COO Warren Spector had "resigned." Spector is a former mortgage-securities trader who had risen up through the ranks during his 20 years with Bear.
The intended effect of such a drastic move is to try to restore confidence and show investors and lenders that Bear means business about controlling the situation. At this point, though, the burden is on Bear to prove that the disciplined risk management that it has been known for will prevail over mortgage market hubris.
More financial Foolishness:
JPMorgan Chase is an Income Investor pick.
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...