In investment banking it’s best to be untrendy, contrarian even. The houses riding high – Bear Stearns and Lehman Brothers – excel in these virtues.
At the top of the bull market, speculation was rife that Bear Stearns was on the block because it lacked the scale to keep pace with the bulge bracket.
At about this time, chairman and CEO James Cayne’s only slightly less than categorical denial to a rating agency analyst of an impending sale – whereas previously he had been categorical – was read by the market as “sale just around the corner”.
But instead Bear started taking costs out of the business long before rivals. The market then started playing to the house’s strengths in fixed income and the financial results proved very exciting for shareholders.
“Our culture and history is to ride out cycles,” says Samuel Molinaro, Bear’s chief financial officer. Like most senior managers at Bear, he prefers a low profile. “It’s disruptive to pull out when the market goes down and you can’t get back in quickly enough when the market turns.”
Things are going so well at Bear Stearns that Fortune magazine picked it out as America’s Most Admired Securities Firm. This is a bit of a surprise. On Wall Street the hard-driven, fiercely meritocratic (if two employees marry, one has to leave the firm) Bear environment used to be considered a culture apart from the white shoes firms. Loyal Bear employees were said to be PSD: poor, smart and dying to be rich. But now, as one of the few firms hiring, it is able to pull in more or less anyone it wants.
Expansion is going on in equities, once again displaying that Bear talent for investing at the bottom of the cycle. “We have always been contrarian and we think now is the right time to invest in equities,” says Mr Molinaro.
Lehman Brothers’ purchase of asset manager Neuberger Berman looks similarly well timed.
