House of Cards (29 page)

Later Monday morning, both JPMorgan and Bear Stearns announced the revised deal exactly as Sorkin had described it. The public announcement even contained the precise canned quotations from Dimon and Schwartz that had appeared in Sorkin's article. “We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise,” Dimon said, “and bring more certainty for our respective shareholders, clients and the marketplace. We look forward to a prompt closing and being able to operate as one company.” The issuance of the 95 million shares to JPMorgan—the 39.5 percent block— was plenty controversial since it violated the New York Stock Exchange rules that required a shareholder vote on the issuance of more than 20 percent of the outstanding shares of a listed company. Of course, this was yet another rule meant to be broken. The NYSE policies “provide an exception” in situations “where the delay involved in securing shareholder approval for the issuance would seriously jeopardize the financial viability” of the company in question.

In the mounds of paper produced as part of the public announcement, there was no mention of the supposed legal error that caused the whole deal to be renegotiated. “It was $8 a share on six million shares,” Cayne explained. “That's what I made out of that mistake.”

There would be no further mistakes. The revised deal was now exceptionally well vetted by legions of lawyers. This time there was no late-night conference call for investors to badger the JPMorgan executives about the details of the deal. In its place was a three-page Q&A document that spelled out the details of how the revised Guarantee Agreement would work. If Bear Stearns's shareholders voted down the deal, the merger agreement would end four months later unless extended by JPMorgan. JPMorgan would also be on the hook for all of Bear Stearns's agreed-upon obligations until the termination of the agreement but none thereafter. The guarantee could be enforced directly against JPMorgan by Bear's customers.

The reaction from the market was equally predictable. There were the cynics, who remained incredulous that Bear Stearns had not been
allowed to fail. “So everybody wins in this deal but the taxpayers (surprise),” wrote one observer on the
New York Times
blog. “The BS shareholders, many of whom are the same executives who drove the firm into the ground, are not wiped out after all. JPMorgan gets a bargain on the remaining worthwhile parts of the business. The rest of us get to bail out the creditors, to the tune of $29 billion in public funds. Why not just skip all the window-dressing and open up a Fed booth on the sidewalk in lower Manhattan to hand out public cash to finance types who happen by? They could add one in Connecticut to make sure all the hedge fund folks get theirs as well (too big to fail, you know).” But the new agreement seemed to solve many of the problems found in the first deal. There was a slow but steady increase in the number of customers and counterparties willing to do business with Bear Stearns because there was no longer nearly as much confusion about how the guarantee would work. And the Bear Stearns stock traded up immediately, although some people buying the stock in the following days—driving the price up to as high as $13.85 per share on March 24—remained foolishly optimistic that a higher bid from either JPMorgan or another buyer would materialize.

JPMorgan had no intention of allowing anything remotely like another bidder to materialize. In the days following March 24, the firm steadily added to its 39.5 percent stock ownership by buying more shares in the open market. For instance, on the day the revised deal was announced, JPMorgan bought 11.5 million shares at a price of $12.24 per share, for a total of $140.7 million. That purchase brought the bank's total share ownership up to just under 13 million Bear shares. In the end, JPMorgan amassed 49.73 percent of the total number of Bear Stearns shares outstanding, all in an effort to ensure that the vote would go its way.

“W
E'RE THE
B
AD
G
UYS
”

hether any of the shares JPMorgan bought following the announcement of the revised deal included the 5.66 million shares Jimmy Cayne and his wife, Patricia, sold on March 25—for a total of $61.34 million—is not clear since buyers and sellers rarely know each
other in the marketplace. Cayne's sale not only cemented his loss of more than $1 billion on the Bear Stearns stock but also saved him from having to vote at all on the JPMorgan deal, either for or against. His sale not only signaled to the market that it was highly unlikely that a better deal from any quarter was in the offing but also gave the general public a rare glimpse into the long-running, behind-the-scenes feud that existed between Cayne and Alan “Ace” Greenberg, Cayne's onetime mentor at Bear Stearns and the CEO of the firm for fifteen years until 1993, when Cayne deposed him. It turned out that when Cayne sold his shares on March 25, Greenberg—who remained a trader at the firm and was on the executive committee even though he was eighty years old—charged Cayne the non-employee commission of $77,000. (Cayne had retired some two months earlier but remained non-executive chairman of the board.) The commission for an employee selling such a large block of stock would have been a maximum of $2,500. Despite the forty years Cayne had devoted to Bear Stearns, since he was not technically then still an employee, Greenberg decided to charge him the full retail price. “If he doesn't like it, he should do his future business elsewhere,” Greenberg told Landon Thomas Jr. of the
New York Times
in an inflammatory article that appeared on May 7. It was the first time that either man had spoken publicly about the events that destroyed the company with which they were so closely identified.

Greenberg went on to blame Cayne for the demise of Bear Stearns. He said Cayne had not taken his advice as the credit crunch unfolded during the summer of 2007. “Jimmy was not interested in my point of view,” Greenberg said. “He was a one-man show—he didn't listen to anybody. That is when the real break took place.” When Thomas asked him to elaborate on specifically what he had recommended that Cayne do to alleviate the crisis at the firm, Greenberg said only, “You can read about it in my book.” He also criticized Cayne for bothering to still show up in his sixth-floor office. “I don't understand why he comes in,” he said. “He is not employed here anymore.” When asked how he felt upon learning that Cayne lost most of his fortune as a result of the collapse of Bear Stearns, according to the
Times,
“Mr. Greenberg's eyes turned cold. ‘Oh, really. Goodness, that's a shame,' he deadpanned.” As for Cayne causing the firm's ultimate troubles, Greenberg played it coy but transparent. “He is dreaming,” he said of Cayne. “Why should I blame him? I don't need to—everyone can draw their own conclusions.” When Thomas asked Greenberg if he still considered Cayne a friend, “he holds a long silence before responding. ‘Oh, he is a dear friend.’”

In the article, which was prominently played on the front page
of the business section, Thomas referred to Cayne as “a public piñata” who'd been “blamed by Bear employees [and] a presidential candidate”— a reference to an April 15, 2008, speech at Carnegie Mellon University in which Senator John McCain lumped Cayne together with Angelo Mozilo of Countrywide Financial as a former CEO who was “packed off with another forty or fifty million for the road”—for the firm's collapse. The article noted that Cayne's “ties with Bear will be formally severed in June. Although he still holds the title of chairman, he spends his days in relative seclusion, seeing few outside of the tight circle of his family, his two assistants and his lawyers. He personally lost about $900 million when Bear Stearns's stock price collapsed.”

Cayne did not speak with Thomas for the article, at least not on the record, but his fingerprints are in and around it. For instance, Thomas described an incident between the two men in late 2007 when “Mr. Greenberg threatened to leave Bear, claiming he was not getting the respect he deserved. The departure would have represented another public relations blow for the reeling firm, and Mr. Cayne was told by his board to do what he could to appease him. Sitting down in Mr. Greenberg's office, Mr. Cayne made his appeal, mentioning in particular a recent speech he had given at a Bear dinner in which he saluted Mr. Greenberg's accomplishments and legacy. ‘Alan,' Mr. Cayne said before walking out, ‘this is the opposite of disrespect, so don't tell me you are disrespected.’” Pretty much Cayne alone referred to Greenberg by his given name, Alan, rather than by his nickname, Ace; in fact, Cayne charged people $100 if they said “Ace” in his presence.

But Cayne was confused and incensed by Greenberg's public humiliation of him. He said his former mentor's accusations were lies and distorted the true picture of what happened to the firm. “The anger that Greenberg has is unnatural,” he said in one of a series of lengthy interviews. “It's like vindictively unnatural. Why? What happened? Well, that I'm trying to explain the best I can. I'm not a shrink, but I am close to a shrink because I hear so many stories and so many different angles of how to think about it. But talk to Sam [Molinaro]. Talk to Alan Schwartz, too. Ask them. Talk to [Warren] Spector. When did Greenberg ever say sell anything on the mortgage side? Ever? Ever? So that's like a guy going front and center with a boldfaced fucking fictional lie. And that's his calling card, telling Landon Thomas, ‘Well, you'll read about it in my book.' Read about what? What's there to read about? There was never a whimper.”

Cayne had not appreciated McCain's comparison of him to Mozilo back in April, either, especially since he had sold very little of his Bear Stearns stock over the years—unlike Mozilo—and because he had received
no severance or payment of any kind when he retired from the firm in January. McCain had also been the recipient of Cayne's largesse to the tune of $1,000 in the 2000 presidential election, and he'd spoken to Bear's top executives back in February at Cayne's invitation. Cayne wrote McCain on April 23, “I lost 90% of my net worth, alongside many other longstanding shareholders of Bear Stearns. To indicate otherwise is categorically false. You have taken your issues with Wall Street to Main Street using my name and have treated me unfairly in the process.”

At first, Cayne considered taking out full-page ads in the
New York Times
and the
Wall Street Journal
to publicize his letter to McCain. In the end, he decided to write a private letter expressing his outrage. “Quite frankly,” he continued, “I am surprised that a person of your stature would stoop to populist one-liners much less take these sorts of pot-shots without checking to see if they were factually accurate. You are vilifying me in public and have done so with a lack of facts, causing irreparable harm to me and my family. When this point in history is remembered, your statements cast me as one of the leading actors and again, you have done so incorrectly and unjustly.” Cayne reminded McCain how well he had been treated during his February visit to the firm. “I had hoped to be treated with the same type of respect instead of having my character and situation exploited based on misinformation and innuendo,” he concluded. “As a man of honor, I would hope you would take appropriate steps to publicly set the record straight.”

Cayne took elaborate steps to have the letter hand-delivered to the senator, asking Donald Tang, a Bear Stearns vice chairman, to give the letter to a friend of his, a rear admiral, who also happened to be one of McCain's friends. McCain never responded to Cayne's letter, either in writing or by calling him on the phone, which offended Cayne further.

The only public support Cayne received after the McCain speech came from the
New York Sun,
where Cayne had been the bridge columnist for a few years. The
Sun
editorialized, “There has been no evidence of any intentional wrongdoing on his part. To single this 74-year-old out for opprobrium to score political points in the middle of a presidential campaign is just inappropriate—like Attorney General [Eliot] Spitzer taking shots at Maurice Greenberg or John Whitehead. What would Mr. McCain like to see done to Mr. Cayne: have the last 6% of his wealth, accumulated in a long career according to board-and shareholder-approved contracts, punitively confiscated by the government?”