Bear Stearns shakes up asset management unit
NEW YORK (Reuters) - Bear Stearns Cos. Inc. BSC.N on Friday replaced the head of its asset management business after two of the investment bank's hedge funds hit rock bottom by making bad bets on risky mortgages.
Bear Stearns hired Jeffrey B. Lane, a vice chairman at Lehman Brothers, to help repair the company's image, find out what went wrong and boost the asset management business. Lane replaces Richard Marin as chairman and chief executive of Bear Stearns' asset management business.
The meltdown of the hedge funds embarrassed Bear Stearns, widely known for its savvy in handling mortgage risk. The funds buckled on wrong-way bets tied to subprime loans, which are made to people with weak credit.
"We've obviously had a major hiccup that we're all embarrassed about," Lane told Reuters in a telephone interview. "I'm here not to unwind the business, but to grow it."
Later in the interview, he added that current problems "ain't gonna happen again." He said his priorities include making sure the hedge funds are carefully unwound and that investors are appropriately cared for.
Meanwhile, the U.S. Securities and Exchange Commission has made informal inquiries about the Bear Stearns hedge funds, according to people familiar with the matter. The SEC declined to comment, but earlier in the week the agency's chairman announced the creation of a special working group to look at subprime hedge fund issues.
Shares of Bear Stearns are down 7.2 percent this month as investors worry that the company's U.S. mortgage-related business will hurt profits. The company also does less business overseas than its Wall Street rivals.
The stock was down $5.16, or 3.6 percent, to $138.84 in late afternoon trade on the New York Stock Exchange.
Lane is a veteran senior executive at Lehman Brothers Holdings Inc. LEH.N and Neuberger Berman Inc. Marin will remain as a senior adviser to Lane, the company said.
Bear Stearns Chairman James Cayne said in a statement that the company's focus is restoring investor confidence in its asset management business.
The company's asset management revenue surged to $184 million in the second quarter, up from $23 million in the year-earlier period. Higher fees and favorable investment performance boosted revenue. Assets under management rose 25 percent to $60 billion at the end of May, up from $48 billion a year before.
"The state of most of the (asset management) business is just fine," Lane said.
In a press release, Bear Stearns did not address the status of Ralph Cioffi, who managed the two troubled hedge funds. Lane said Cioffi is hard at work.
"You never have too much talent," Lane said. "We'll see how it works out ... Everybody is an employee at will, including me."
Bear Stearns said it would bail out only one of two struggling hedge funds, providing $1.6 billion of financing to save its High-Grade Structured Credit Strategies Fund. The other fund, which carried more leverage, has about $1.2 billion in debt that's being worked out.
