By Keith B. Richburg and Alejandro Lazo
Washington Post Staff Writers
Tuesday, March 18, 2008
NEW YORK, March 17 -- The bagpipes' notes filling the airy atrium of Bear Stearns's midtown Manhattan headquarters Monday had all the solemnity of a funeral dirge. But the pipers in their tartan kilts and caps were there to celebrate the city's annual St. Patrick's Day parade starting a block away and were just using the venerable firm's lobby to warm up.
That odd juxtaposition, along with schoolchildren in Irish dancing dresses crowded into the lobby, was part of the surreal atmosphere for Bear Stearns's 14,000 employees, who came to work with their bank's sale all but closed, their options packages gone, their job security unclear.
Despite the worry that Bear Stearns's collapse could presage a bigger financial crisis and ensnare other wobbly investment banks, Wall Street managed to avoid the wholesale sell-off many were initially expecting. After an early morning dive, followed by a volatile day of trading, the blue-chip Dow Jones industrial average rallied in the final minutes of trading to close up 21.16 points, or 0.18 percent, to 11,972.25.
On Friday, Bear Stearns's stock was worth $30 a share. Over the weekend, rival bank J.P. Morgan Chase reached a deal to buy the troubled firm for the fire-sale price of $236 million, or just $2 a share. Employees coming to work Monday morning found a $2 bill mischievously taped to one of the firm's revolving doors.
They gathered in the lobby of Bear Stearns's skyscraper headquarters to trade gossip and talk on cellphones or to step outside for a smoke and catch the bagpipers and high school marching bands practicing before the big parade. Nobody had any real news -- who would be laid off, who would keep their jobs. There were mostly just a lot of stunned faces.
"I'm here for the funeral," said one young man in a colorful striped shirt, who, like most of the Bear employees, did not want to talk to the news media. He spoke on condition of anonymity. "No luck of the Irish."
"Would you believe I've been here five days?" he said between drags on his cigarette while the Sword of Light Pipe Band tuned up on the street. "Do you know where I came from? J.P. Morgan." He questioned how long the deal had been in the works, saying, "$2 a share doesn't happen that quick."
He added, "It's not a pretty picture" before disappearing back inside.
As he spoke, burly blue-shirted security men exited Bear's glass doors carrying several large gray metal containers wrapped in plastic and seals. Someone joked that it was the firm's cash going to J.P. Morgan's headquarters around the corner. Some employees were seen earlier carting out their personal belongings in boxes.
On Wall Street, Bear Stearns had a reputation as a hard-nosed and aggressive maverick prone to taking risks. But the rapid and stunning fall of a firm that had been around for 85 years caused a jolt of nervousness among bankers and traders, who openly wondered where the financial fallout might strike next.
"It's just the beginning. These are terrible times; everybody is anxious" said Steven Rosenberg, 37, a vice president of a financial institution -- he declined to say which one -- who was having an end-of-the-day beer at Harry's Cafe, near Wall Street. "I see locusts, black skies. It's very bad."
"It's Monday. Everything bad happens Monday," said his colleague, a strategic business manager at the same firm. "We were surprised only one institute stepped up to buy Bear Stearns. Life goes on in ebbs and flows. You keep doubling down until there is no more money."
"I'm just pessimistic," said John Hatfield, 28, who trades mutual funds. "I think there is a lot of uncertainty for everybody."
Some analysts were breathing slightly easier Monday because a wholesale stock sell-off was averted, at least for now. U.S. investors were appeased by the Federal Reserve's weekend moves to avert an all-out financial crisis, including lowering by a quarter-point the rate it charges to lend directly to banks and setting up a lending option for firms to secure short-term loans with a broad range of collateral.
"When you walked in this morning . . . you were thinking 'My God, this is going to be a terrible day,' " said Robert Pavlik, chief investment officer of Oaktree Asset Management. "So if you can close out this day with having relatively minor losses, or relatively flat trading, you could take it as some sort of moral victory."
Some U.S. investors viewed the collapse of Bear Stearns as a necessary step in cleansing a Wall Street plagued by years of risky bets made on the nation's housing market.
"Until there is blood in the streets, the markets really can't begin to recover on a more systematic basis," said Randy Bateman, chief investment officer for Huntington Asset Advisors. "This Bear Stearns situation may be that catharsis."
Still, the turmoil in the U.S. financial markets was having severe reverberations overseas, where Asian markets dropped significantly Monday and European markets lost ground.
Japan's Nikkei index shed about 3.7 percent of its value, Hong Kong's Hang Seng index was off by 5.2 percent, and the Sensex in India fell 5.1 percent on Monday. The Shanghai composite, the main index of Chinese stocks, dropped 3.6 percent.
In early trading Tuesday, the Nikkei was up 0.2 percent, the Hang Seng fell 2.1 percent and the Shanghai composite was down 1.8 percent.
In Europe on Monday, London's FTSE 100 index was down nearly 3.9 percent, and the main exchanges in France and Germany were off 3.5 percent and 4.2 percent respectively.
Other signs of a mounting financial crisis emerged. The prices of oil and gold in Asia soared to new highs, while the dollar weakened to new lows against Asian currencies. At one point on Monday, the dollar was trading at 95.76 Japanese yen -- a low that hadn't been seen since 1995. The dollar also dropped to a new low against the Chinese yuan, 7.0815.
"All these factors will worsen an already declining American economy," said Huang Shaoming, a senior economics researcher at the Bank of China in Hong Kong.
At China's Citic Securities, executives announced they wanted a "technical adjustment" to their planned $1 billion investment in Bear Stearns, given the developing crisis at the company. Details were not immediately available.
Some of the few spots in the world that weren't immediately affected by the crisis were East African stock exchanges, which are not integrated into U.S. or European markets.
"If you look at our markets, no stock is listed in Europe or the U.S.," said Isaac Njuguna, head of investments for Zimele Asset Management Company in Nairobi. "That means we are more or less insulated. But that's not to say the effect will not come in a different way at a different time."
Down the road, he said, countries like Kenya, which exports coffee and tea to the U.S. and European markets, could take a hit from weakened world economies. The Nairobi exchange is also bracing for the possibility that foreign investment, which has buoyed the exchange in recent years, could dry up.
Lazo reported from Washington. Staff writer Robin Shulman in New York and correspondents Ariana Cha in Shanghai, Blaine Harden in Tokyo and Stephanie McCrummen in Nairobi contributed to this report.