Tuesday, March 18, 2008

Unwitting Victims Of The Bear Sterns Collapse - Its Employees

Ironically, if one goes into the Bear Sterns Investor Relations page, the page banner reads: “EIGHTY-THREE YEARS OF PROFITABILITY” and “TWENTY FIVE YEARS AS A PUBLIC COMPANY”. While a cynic may find this to be amusing, to me, this is a sad testament of complete mismanagement and failure at the C-level that ultimately will cost the hard working folks their retirement money.

Bear Sterns employees hold approximately 1/3 of the company stock, and of this, according to their 2007 Proxy Statement, the executives at the C-level hold 9%. So, the regular working folks at Bear Sterns hold approximately 24% of the common stock.

Now, for those folks who have not or do not work for a Wall Street Brokerage or a major investment bank, here is a reality check: most of the workers work in the part of the bank that is known as the “Middle Office and Back Office” (MO/BO). These folks do not make the six-figure bonuses that one reads/sees/hears in the media. A typical MO/BO worker makes less than $100,000 a year.[i] Now, one would say that this is still a lot of money.

Granted, when compared with the median household income in the U.S. of $48, 201, this seems like a lot. However, the MO/BO workers are also mostly composed of “exempt workers” who make a fixed annual salary. This means that they do not qualify for overtime pay even though they will work overtime; a lot of overtime. The end result is that the MO/BO workers annual pay, when calculated on an hourly rate, is not that much different from any other job. An interesting read from mergersandinquisitions.com on this very subject.

So, having normalized the pay rate, one can begin to appreciate the magnitude of the loss suffered by the employees who saw the stock price go from $165 in January 2007 to $5.50 at today's open. With most of their stock holding in 401k or other retirement vehicles, such as BEAR STEARNS COMPANIES INC. 2008 TRUST, which held 27,316,339 shares as of February 14, the employees of Bear Sterns have seen their retirement money go up in smoke.

Perhaps the employee shareholders of Enron could provide some measure of comfort to these folks.

May Your Trading Be Profitable

Ed Kim
DISCLOSURE: The author holds no long or short positions in BSC at this time.
[i] http://www.just4finance.net/vacancies/vacancy-details.asp?id=99059

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1 comment:


I think the more evident concern is with the tax payers holding the risk but none of the upside. It's a lopsided deal.