Aug. 6 (Bloomberg) -- Bear Stearns Cos. declined to a two- year low on the New York Stock Exchange, a day after ousting Co- President Warren Spector over errant trades that led to the collapse of hedge funds tied to the slumping housing market.

The board agreed that Alan D. Schwartz, 57, will become sole president, the company said in a statement yesterday. Spector, 49, was responsible for fixed income and asset management at the securities firm, the second-largest underwriter of mortgage- backed securities. He was viewed by analysts as the top candidate to succeed 73-year-old Chief Executive Officer James E. Cayne.

Bear Stearns, founded on Wall Street in 1923, has lost a third of its stock-market value this year and analysts are starting to question leadership at the New York-based firm. While Cayne said on an Aug. 3 conference call that the company was ``solidly profitable'' in June and July, Standard & Poor's may cut Bear Stearns's debt rating because of declining earnings from losses in bonds backed by residential mortgages.

By removing Spector, management is acting as if it ``didn't know what was going on, and that is just totally unsupportable,'' said Richard Bove, an analyst at Punk, Ziegel & Co. in Lutz, Florida, who has a ``sell'' rating on the company's stock. ``If there is no oversight system, people should be looking at Jimmy Cayne.''

Shares of the company dropped $3.37, or 3.1 percent, to $104.98 in composite trading on the New York Stock Exchange at 2:33 p.m., after dipping to $100.22 earlier today. They reached the lowest level since August 2005.

Wall Street Decline

The 12-member Amex Securities Broker/Dealer Index gained l.1 percent. New York-based Lehman Brothers Holdings Inc. rose 1.7 percent and shares of Goldman Sachs Group Inc., also based in New York, increased 2.5 percent.

Cayne and Spector didn't return calls to their homes. ``We have determined to make changes in our leadership structure,'' Cayne said in a statement yesterday. CNBC reported earlier today that Cayne said he has no desire to step down, citing an interview with the CEO last night.

Bear Stearns triggered a decline in the credit markets in June after two of its hedge funds faltered, as default rates rose on home loans to people with poor credit. For subprime mortgages turned into securities, defaults hit a 10-year high.

The company pledged $1.3 billion to help stem losses in the funds. They filed for bankruptcy protection on July 31, two weeks after Bear Stearns told investors they would get little, if any, money back. The firm then blocked investors from pulling money from a third fund as losses in the credit markets expanded beyond subprime-mortgage securities.

Laying Blame

``Cayne is reasserting his authority and laying the blame,'' said David Hendler, head analyst for financial companies at CreditSights Inc., an independent research firm in New York. ``He's trying to reassure debt and equity investors that there's a depth of managerial talent and new bench in place to be in charge of the businesses.''

In yesterday's management shakeup, Chief Financial Officer Samuel Molinaro, 49, was given the additional role of chief operating officer, Bear Stearns said. Jeffrey Mayer, co-head of fixed income, replaces Spector on the executive committee.

Molinaro, who has been in the securities industry for 22 years, said on last week's conference call that the fixed-income market was ``as bad as I've seen it.''

Spector's Pay

Spector, who was paid $36.9 million in 2006, becomes the highest-ranking executive at a New York-based securities firm to lose his job since mortgage defaults started increasing more than a year ago.

Since the two hedge funds collapsed in June, Bear Stearns has replaced the head of asset management, Richard Marin. Bear Stearns hired Lehman Brothers Vice Chairman Jeffrey Lane, 65, a Wall Street veteran with four decades of experience, to take Marin's job.

S&P cut its outlook on Bear Stearns's A+ credit rating on Aug. 3 to ``negative,'' citing concern about the mortgage market's effect on earnings. A reduction would leave Bear Stearns with the lowest rating of the five biggest U.S. securities firms. Only New York-based Lehman underwrites more mortgage bonds than Bear Stearns.

At the current share price, Bear Stearns trades at about 1.2 times book value, or assets minus liabilities. The average Wall Street stock trades at about two times book value.

Book Value

Merrill Lynch & Co.'s Guy Moszkowski wrote in a June 22 report to clients, two days after Bear Stearns disclosed the hedge fund losses, that the company might fetch two times book value in a takeover. The stock traded at $144 at the time. Bear Stearns would be attractive to ``large global banks looking to improve their U.S. capital markets position,'' Moszkowski wrote.

Glenn Schorr, an analyst at UBS AG in New York, wrote in a report to investors before the market opened today that shares of securities firms are approaching levels that are becoming ``more attractive.''

``We're now not too far away from previous valuation troughs,'' Schorr wrote. ``We think it makes sense to put a toe in the water as it's very tough to call bottoms.'' He upgraded shares of Merrill, down 23 percent this year, to a ``buy.''

Bear Stearns's market value has tumbled to about $15 billion from $22 billion before the crisis began. That's almost half of Lehman and less than a fifth of Goldman Sachs.

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: August 6, 2007 14:37 EDT