Former Bear executives are running bond businesses at onetime rivals such as Bank of America and Goldman Sachs
Three years after the collapse of Bear Stearns, which helped fuel the worst financial crisis since the Great Depression, former executives of the firm are running bond businesses at onetime rivals, including Bank of America (BAC) and Goldman Sachs (GS). Alumni of Bear Stearns, which has been accused in lawsuits of misrepresenting the mortgages included in bonds, have contributed to a Wall Street rebound. Profits at broker-dealers totaled $89 billion in 2009 and 2010, the best two years on record, according to New York State's comptroller.
"That's Wall Street," says Jeanne Branthover, managing director at Boyden Global Executive Search in New York. "If we didn't have these types of survivors and Wall Street couldn't reinvent itself, we as a country wouldn't survive."
Not everyone feels that way. "At a karmic level, I don't begrudge the folks at Bear Stearns jobs," says Ruhi Maker, a lawyer at the Empire Justice Center in Rochester, N.Y., who told Federal Reserve officials at a 2004 hearing that investment banks were producing such bad mortgages that their survival might be challenged. "But I worry that until there is a real price to pay for costing the economy trillions of dollars, and jobs and homes, people are going to keep doing it."
Bear Stearns was one of the biggest players in the mortgage securitization market—where home loans were packaged into bonds for sale to investors. After the housing market collapsed, JPMorgan Chase (JPM) agreed to buy Bear Stearns on Mar. 16, 2008, helped by a $29 billion loan from the Fed. The Fed's data show it is on track to be repaid.
Among the most highly placed members of the Bear Stearns diaspora are Michael B. Nierenberg, 48, who's now in charge of Bank of America's global mortgage and securitized-products business; Jeffrey L. Verschleiser, 41, who runs mortgage operations at Goldman Sachs; and Scott Eichel, 36, now Royal Bank of Scotland's (RBS) global head of securitized products and U.S. credit trading. Nierenberg helped make Bank of America the largest underwriter of repackaged slices of U.S. government-backed mortgage bonds last year. Eichel has turned Edinburgh-based RBS into the second-largest manager of worldwide sales of securitizations without government backing. Nierenberg, who oversaw adjustable-rate debt at Bear Stearns, and Verschleiser, whose purview included subprime loans, were co-heads of the New York-based firm's U.S. mortgage business until being promoted in late 2007, when Eichel and another trader took the posts.
Thomas Marano, 49, global head of mortgages, rates, and foreign exchange at Bear Stearns, is now chief executive officer of the mortgage unit of Ally Financial, the auto and home lender rescued by the U.S. government. The former Bear Stearns executives all declined to comment.
Buyers and bond insurers suing over mortgage securities created or sold by Bear Stearns include Allstate (ALL), Ambac Financial (ABK), the Federal Home Loan Banks of Pittsburgh and Seattle, Syncora Guarantee, CIFG Assurance North America, and MBIA Insurance. A judge last month denied Ambac's bid to add 10 individuals, including Verschleiser and Marano, to its suit. "These are large, sophisticated insurance companies that are trying to blame others for risks they knowingly took and were paid for taking," says Jennifer Zuccarelli, a spokeswoman for JPMorgan in New York. "We do not believe their claims are meritorious and intend to defend Bear vigorously."
Aside from two former hedge-fund managers, who worked in Bear Stearns's asset-management unit, U.S. officials haven't sued any of the firm's employees or executives for wrongdoing in relation to the mortgage crisis. Ralph Cioffi and Matthew Tannin, who lost $1.6 billion of investors' money, were acquitted in a criminal case in 2009. A civil case in which the Securities and Exchange Commission also alleges that Cioffi and Tannin lied to investors is pending. They denied wrongdoing.
The bottom line: The financial crisis hasn't damaged the careers of many former Bear Stearns executives who have found new high-level jobs on Wall Street.