Former Bear Stearns CEO Jimmy Cayne died this week at the age of 87. If Celebrity Net Worth existed in 2007, we definitely would have written an article praising the incredible rags to riches story of Bear Stearns CEO Jimmy Cayne. Back then, Jimmy was seen as a Wall Street rock star in a couple different ways.
First off, in terms of personal wealth he was absolutely a rock star. Cayne, whose career had very humble beginnings, was the first Wall Street CEO to amass a personal equity stake that was worth over $1 billion dollars.
Secondly, in terms of partying, Jimmy also had some very rock star-esque habits. For years, rumors floated throughout the industry that this billionaire finance CEO was a heavy marijuana user. Heavy enough that for many years there was an entire section titled "Drug Use" on Jimmy's Wikipedia page. Interestingly, that section was totally erased at some point in the last few years.
And finally, during those good years, Jimmy was a Wall Street darling who might jet off to a play Bridge with Warren Buffett and Bill Gates on a moment's notice.
An awful lot has happened in the world since 2007. Obviously, Bear Stearns no longer exists and Jimmy Cayne is unfortunately remembered as one of the primary figures who caused the 2008 Great Recession. But perhaps the most shocking part of Jimmy's story is what happened to that $1 billion Bear Stearns stake over a matter of weeks in March of 2008.
Side Personal Anecdote
Back in 2005, I was a senior in college wrapping up a finance degree with very average grades and a resume that basically consisted of one summer internship at Comedy Central. After being rejected from 20 different finance related jobs, I somehow landed an interview at Bear Stearns. This would have been an absolute dream job for me at the time. Starting salary would have been $75,000. That's the equivalent of offering a 21 year old (with mediocre grades and basically no experience) a starting salary of $91,000 today. And despite the fact that I lived in Washington D.C., somehow Bear's travel department didn't even blink at spending $2,300 on a last minute plane ticket to fly me up to New York City. I spent an entire morning being interviewed by a half dozen different people and then the HR person took me out to a really fancy lunch where I ordered a steak sandwich that cost $28.
After getting rejected, I didn't have any other opportunities in New York so I ended up moving to LA and got a job at an internet startup that paid me $7 an hour for about two years. At this point in time, there's a 99% chance that whoever got that job at Bear Stearns in my place, was unceremoniously laid off amid the global financial meltdown. This poor person most likely then had to go through a several hellish years trying to rebuild their career (or abandon finance entirely and start from scratch). Meanwhile, I was still making under $28k a year but I was just a few months away from purchasing the domain "www.celebnetworth.com". And I was a just a few years from being able to quit my job at that internet company to run CNW full time. The point of this story is that whoever at Bear Stearns back in 2005 decided I wasn't the right fit for their company did me an unbelievably massive favor. So take it from me, getting rejected from your dream job can end up being the biggest blessing you'll ever receive. Anyways, back to Jimmy Cayne.
Jimmy Cayne – From College Dropout to Billionaire CEO
James Cayne was born on February 14, 1934. He grew up in Evanston, Illinois. He briefly attended Purdue University, but dropped out and subsequently joined the Army. His first job after the Army was as a traveling photocopier salesman. He also spent time selling scrap metal.
In his free time, Jimmy loved to play the card game bridge. In the late 1960s he quit his job in sales and moved to New York City to become a full-time bridge player. Apparently that's a thing. Or at least it was in the 1960s.
On the bridge circuit (apparently that's a thing too), Jimmy would periodically run into a man named Alan Greenberg, better known as Ace Greenberg. When Ace wasn't dabbling on the bridge circuit, he was busy working as the CEO of Bear Stearns. After bumping into each other a few times, Ace was impressed by Jimmy. They became fast friends, and in 1969 Ace hired Jimmy to be a stockbroker at Bear Stearns.
Over the next decade, Jimmy proved to an extremely talented broker and manager despite not having a formal education or background in finance. He became a partner in 1973 and by 1985, Jimmy had risen high enough to be named President of the company. In 1993, Ace Greenberg stepped down as CEO and passed the reigns over to Jimmy.
Jimmy Makes A Fortune
Under Ace Greenberg's leadership, Bear Stearns was known as a fairly conservative company that avoided risk and leverage. Under Jimmy's leadership, Bear Stearns increased its leverage ratio from a barely any to 35 to 1. That means for every $1 Bear actually owned, it had borrowed an additional $35. The company dove head first into the newly emerging (and highly risky) derivatives markets and launched a series of aggressive hedge funds.
The strategy worked amazingly well, for a while. Bear's stock price soared and Jimmy earned $40 million in total compensation in 2006. More importantly, Jimmy also managed to put himself in the position to amass a 5% stake in Bear Stearns. He purchased a $30 million NYC apartment and traveled nearly every weekend by helicopter or private jet to play golf and bridge at luxury resorts.
In January 2007, Bear's stock price hit an all time high of $172 a share. At this level, Jimmy Cayne's personal equity stake was worth $1 billion. As we mentioned earlier, Jimmy was the first Wall Street CEO to become a billionaire from his equity stake. Not bad for a guy who didn't go to college and whose resume basically consisted of 1) Photocopier salesman and 2) Amateur bridge player.
Throughout those high-flying days, Jimmy was allegedly a heavy user of marijuana. He has always denied these rumors. Years later, after their relationship soured, Ace Greenberg publicly described his former protegee as a "dope smoking megalomaniac".
In a 2009 book written by CNBC reporter Charlie Gasparino, Jimmy was also described as a "self-identified cocaine user". And below is an excerpt from Wall Street Journal reporter Kate Kelly's 2010 book "Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street":
"He liked to smoke marijuana. This pastime was well known to some close associates, who had seen him smoking in his Park Avenue apartment. It had also come to the attention of some of the regulars on the bridge circuit, where Cayne was known to retire to his room after the day's play and tuck into his pot stash as a way to relax… Cayne's marijuana use was [also] discovered by a bridge-circuit regular at a Memphis Doubletree. After the day's competition, he invited a fellow player and a woman to join him for a smoke in a lobby men's room."
Bear Stearns Collapse
The first sign that Bear Stearns was in trouble (and one of the earliest signs that the whole financial sector was standing on shaky ground), happened in July of 2007. FYI, that's over a year before the full financial meltdown would begin to unravel. In June 2007, two of Bear Stearn's highly leveraged hedge funds failed. Both funds were reportedly heavily invested derivatives called collateralized debt obligations that had a large exposure to subprime housing loans. Oh and by the way, while those two funds were collapsing, Jimmy was reportedly unreachable because he was in Nashville at a 10-day bridge tournament. When Jimmy played golf or bridge, he did not carry a cell phone or email device.
Losses from the collapse of these two hedge funds caused Bear's profits to drop 61%. In November 2007, Bear announced that it was writing down $1.2 billion worth of mortgage-related investments and would be posting its first annual loss in the company's 83 years of existence. Standard & Poor's subsequently lowered Bear's credit rating from AA to A, which was shocking at the time. By February of 2008, Bear's stock had been beaten down from that $172 high of January 2007 to $93 a share.
Unfortunately, this was just the tip of the iceberg. It would soon be revealed that Bear Stearns was sitting on $40 billion worth of mortgage bonds that were basically worthless. Soon Wall Street began to worry that Bear did not have enough liquidity to cover its short term obligations. This quickly turned into a vicious circle of negative rumors and supposed impending doom.
On February 27, 2008, Bear Stearns' stock price closed at $85.88 per share. On March 12, 2008 the stock closed at $68.58 per share. Rumors were now flying that the company had a very serious short-term cash problem. On March 14, Bear admits publicly that its "liquidity position has deteriorated dramatically in the last 24 hours". The stock closed on March 14 down 56% to $30.85.
March 14th was a Friday. At some point over that weekend, Bear's executive team led by newly appointed CEO Alan Schwartz (Jimmy Cayne had been relegated to Chairman by now), realized that the company no longer had enough cash to operate. They were down to their last $3 billion, with debt obligations exponentially higher, and growing fast. Without a government bailout or an acquisition, the company would be forced to file for bankruptcy within hours.
March 16th was a Sunday. At some point during Sunday evening, Bear's executive team struck a deal to sell the entire company to JP Morgan. Let me remind you that in January 2007, Bear Stearns hit an all-time high stock price of $172. What price per share did Bear sell to JP Morgan for?
That's a 98.9% drop from $172 a share in January 2007. It was a 97% drop from just one month earlier.
At that price, Jimmy's $1 billion stake was worth $11 million. On March 24, JP Morgan agreed to up their purchase price to $10 per share, equating to a total purchase price of $1.2 billion.
Jimmy Cayne Loses A Fortune
On March 26, 2008, Jimmy sold his entire stake in Bear Stearns, which roughly one year earlier had been worth $1 billion dollars, for a grand total of: $61 million. That's before any taxes and fees were taken out.
On the bright side for Jimmy, during his years at Bear he received a reported $90 million in total cash compensation. But his reputation was definitely broken forever. And I don't think one can ever get over the feeling that $1 billion evaporated through your fingers in a matter of days.
Jimmy is currently ranked #35 on the American Contract Bridge League's list of the best players of the decade. He was also listed as one of Time Magazine's "25 People to Blame for the Financial Crisis". CNBC placed him at #4 on its list of the 20 "Worst CEOs of All Time".