Bear Stearns CEO to Step Down, Price Target Slashed

January 8, 2008 No Comments »

Bear Stearns CEO James Cayne is expected to resign today amid increasing pressure from investors over record losses and the collapse of two hedge funds last summer.

He will join Citigroup’s Charles Prince and Merrill Lynch’s Stan O’Neal, who now sit on the sidelines.

Cayne will likely be replaced by current President Alan Schwartz, a 57-year-old investment banker known for his strong deal-making ability.

Punk Ziegel analyst Richard Bove believes Schwartz is the “right choice” for the job, but warned that the position wouldn’t be easy.

“The task facing Mr. Schwartz is sizable. Outsiders may now be attempting to take control of the company. He must fight this off,” Bove said.

“I believe, as I have written for about a year, that Mr. Cayne must go. He was the architect of what now appears to have been a failed business strategy,” Bove wrote in a note to clients.

The analyst, who maintained a “sell” rating on the stock, slashed his price target on Bear Stearns to $67 from $94 and again reduced his 2008 earnings estimate.

For fiscal 2008, he cut his estimate to $6.59 a share from a previous $7.96 a share, and lowered his 2009 estimate to $7.10 a share from $8.54 a share.

“Its core businesses like mortgages, credit derivatives, prime brokerage, and investment banking may all be facing contraction while the company is losing market share in these shrinking markets. This firm needs to shrink rapidly and then rebuild on a more solid base,” Bove recommended.

Bear Stearns, the fifth-largest U.S. investment bank, took a $1.9 billion write-down in the quarter ended November 30 related to the falling value of subprime mortgage-related securities, leading to its first quarterly loss ever.

And Bove believes the struggling bank and mortgage lender will likely see further writedowns and post higher loan loss reserves in coming quarters.

Shares of Bear Stearns, which have lost 52 percent of their value over the past year, closed at $76.25 Monday on the New York Stock Exchange.

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