type public traded as nyse bsc industry investment services fate acquired by jp morgan chase founded 1923 defunct march 2008 headquarters new york city us key people alan schwartz former ceo james cayne former chairman & ceo products financial services investment banking investment management parent jp morgan chase website www.bear.com the bear stearns companies inc. was a new york based global investment bank securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession and was subsequently sold to jpmorgan chase . its main business areas before its failure were capital markets investment banking wealth management and global clearing services and it was heavily involved in the subprime mortgage crisis . in the years leading up to the failure bear stearns was heavily involved in securitization and issued large amounts of asset backed securities which in the case of mortgages were pioneered by lewis ranieri the father of mortgage securities . 1 as investor losses mounted in those markets in 2006 and 2007 the company actually increased its exposure especially the mortgage backed assets that were central to the subprime mortgage crisis . in march 2008 the federal reserve bank of new york provided an emergency loan to try to avert a sudden collapse of the company . the company could not be saved however and was sold to jp morgan chase for 10 per share a price far below its pre crisis 52 week high of 133.20 per share but not as low as the 2 per share originally agreed upon by bear stearns and jp morgan chase . 2 the collapse of the company was a prelude to the risk management meltdown of the investment banking industry in the united states and elsewhere that culminated in september 2008 and the subsequent global financial crisis of 2008 2009 . in january 2010 jpmorgan ceased using the bear stearns name . 3 contents 1 history 1.1 lead up to the failure increasing exposure to subprime mortgages 1.2 start of the crisis two subprime mortgage funds fail 1.3 fed bailout and sale to jpmorgan chase 2 structure prior to collapse 2.1 managing partners chief executive officers 2.2 major shareholders 3 see also 4 references 5 further reading 6 external links history edit bear stearns former offices at 383 madison avenue bear stearns was founded as an equity trading house on may day 1923 by joseph ainslee bear robert b. stearns and harold c. mayer sr. with 500 000 in capital . 4 internal tensions quickly arose among the three founders . the firm survived the wall street crash of 1929 without laying off any employees and by 1933 opened its first branch office in chicago . 4 in 1955 the firm opened its first international office in amsterdam . 4 in 1985 bear stearns became a publicly traded company . 4 it served corporations institutions governments and individuals . the company s business included corporate finance mergers and acquisitions institutional equities fixed income sales & risk management trading and research private client services derivatives foreign exchange and futures sales and trading asset management and custody services . through bear stearns securities corp. it offered global clearing services to broker dealers prime broker clients and other professional traders including securities lending . 5 bear stearns was also known for one of the most widely read market intelligence pieces on the street known as the early look at the market . citation needed bear stearns world headquarters was located at 383 madison avenue between east 46th street and east 47th street in manhattan . by 2007 the company employed more than 15 500 people worldwide . 6 the firm was headquartered in new york city with offices in atlanta boston chicago dallas denver houston los angeles irvine san francisco st. louis whippany new jersey ; and san juan puerto rico . internationally the firm had offices in london beijing dublin frankfurt hong kong lugano milan s o paulo mumbai shanghai singapore and tokyo . in 2005 2007 bear stearns was recognized as the most admired securities firm in fortune s america s most admired companies survey and second overall in the securities firm section . 7 the annual survey is a prestigious ranking of employee talent quality of risk management and business innovation . this was the second time in three years that bear stearns had achieved this top distinction . lead up to the failure increasing exposure to subprime mortgages edit by november 2006 the company had total capital of approximately 66.7 billion and total assets of 350.4 billion and according to the april 2005 issue of institutional investor magazine bear stearns was the seventh largest securities firm in terms of total capital . a year later bear stearns had notional contract amounts of approximately 13.40 trillion in derivative financial instruments of which 1.85 trillion were listed futures and option contracts . in addition bear stearns was carrying more than 28 billion in level 3 assets on its books at the end of fiscal 2007 versus a net equity position of only 11.1 billion . this 11.1 billion supported 395 billion in assets 8 which means a leverage ratio of 35.6 to 1 . this highly leveraged balance sheet consisting of many illiquid and potentially worthless assets led to the rapid diminution of investor and lender confidence which finally evaporated as bear was forced to call the new york federal reserve to stave off the looming cascade of counterparty risk which would ensue from forced liquidation . start of the crisis two subprime mortgage funds fail edit main article 2007 subprime mortgage financial crisis see also subprime lending and collateralized debt obligation on june 22 2007 bear stearns pledged a collateralized loan of up to 3.2 billion to bail out one of its funds the bear stearns high grade structured credit fund while negotiating with other banks to loan money against collateral to another fund the bear stearns high grade structured credit enhanced leveraged fund . bear stearns had originally put up just 25 million so they were hesitant about the bailout ; nonetheless ceo james cayne and other senior executives worried about the damage to the company s reputation . 9 10 the funds were invested in thinly traded collateralized debt obligations cdos . merrill lynch seized 850 million worth of the underlying collateral but only was able to auction 100 million of them . the incident sparked concern of contagion as bear stearns might be forced to liquidate its cdos prompting a mark down of similar assets in other portfolios . 11 12 richard a. marin a senior executive at bear stearns asset management responsible for the two hedge funds was replaced on june 29 by jeffrey b. lane a former vice chairman of rival investment bank lehman brothers . 13 during the week of july 16 2007 bear stearns disclosed that the two subprime hedge funds had lost nearly all of their value amid a rapid decline in the market for subprime mortgages . on august 1 2007 investors in the two funds took action against bear stearns and its top board and risk management managers and officers . the law firms of jake zamansky & associates and rich & intelisano both filed arbitration claims with the national association of securities dealers alleging that bear stearns misled investors about its exposure to the funds . this was the first legal action made against bear stearns . co president warren spector was asked to resign on august 5 2007 as a result of the collapse of two hedge funds tied to subprime mortgages . a september 21 report in the new york times noted that bear stearns posted a 61 percent drop in net profits due to their hedge fund losses . 14 with samuel molinaro s november 15 revelation that bear stearns was writing down a further 1.2 billion in mortgage related securities and would face its first loss in 83 years standard & poor s downgraded the company s credit rating from aa to a. 15 matthew tannin and ralph r. cioffi both former managers of hedge funds at bear stearns companies were arrested june 19 2008 . 16 they faced criminal charges and were found not guilty of misleading investors about the risks involved in the subprime market . tannin and cioffi have also been named in lawsuits brought by barclays bank which claims they were one of the many investors misled by the executives . 17 18 they were also named in civil lawsuits brought in 2007 by investors including barclays bank who claimed they had been misled . barclays claimed that bear stearns knew that certain assets in the bear stearns high grade structured credit strategies enhanced leverage master fund were worth much less than their professed values . the suit claimed that bear stearns managers devised a plan to make more money for themselves and further to use the enhanced fund as a repository for risky poor quality investments . the lawsuit said bear stearns told barclays that the enhanced fund was up almost 6 % through june 2007 when in reality the portfolio s asset values were plummeting . 19 other investors in the fund included jeffrey e. epstein s financial trust company . 20 fed bailout and sale to jpmorgan chase edit on march 14 2008 the federal reserve bank of new york agreed to provide a 25 billion loan to bear stearns collateralized by free and clear assets from bear stearns in order to provide bear stearns the liquidity for up to 28 days that the market was refusing to provide . shortly thereafter the federal reserve bank of new york had a change of heart and told bear stearns that the 28 day loan was unavailable to them . 21 the deal was then changed to where the ny fed would create a company to buy 30 billion worth of bear stearns assets . two days later on march 16 2008 bear stearns signed a merger agreement with jp morgan chase in a stock swap worth 2 a share or less than 7 percent of bear stearns market value just two days before . 22 this sale price represented a staggering loss as its stock had traded at 172 a share as late as january 2007 and 93 a share as late as february 2008 . the new company is funded by loans of 29 billion from the new york frb and 1 billion from jp morgan chase the junior loan with no further recourse to jp morgan chase . 23 this non recourse loan means that the loan is collateralized by mortgage debt 24 and that the government can not seize jp morgan chase s assets if the mortgage debt collateral becomes insufficient to repay the loan . 24 25 chairman of the fed ben bernanke defended the bailout by stating that a bear stearns bankruptcy would have affected the real economy 26 and could have caused a chaotic unwinding of investments across the us markets . 22 on march 20 securities and exchange commission chairman christopher cox said the collapse of bear stearns was due to a lack of confidence not a lack of capital . cox noted that bear stearns s problems escalated when rumors spread about its liquidity crisis which in turn eroded investor confidence in the firm . notwithstanding that bear stearns continued to have high quality collateral to provide as security for borrowings market counterparties became less willing to enter into collateralized funding arrangements with bear stearns said cox . bear stearns liquidity pool started at 18.1 billion on march 10 and then plummeted to 2 billion on march 13 . ultimately market rumors about bear stearns difficulties became self fulfilling cox said . 27 on march 24 2008 a class action was filed on behalf of shareholders challenging the terms of jpmorgan s recently announced acquisition of bear stearns . 28 that same day a new