Investment Bankinghw1
Investment Banking in 2008 (A): Rise and Fall of the Bear
1. What role did Bear’s culture play in its positioning vis-à-vis its competitors, and what role might that culture have played in its demise?
Bear Stearns played a risky role with the promise of high returns. Bear was participating in the LTCM and created a bubble. Bear’s competitors recognized and hedged against risk by participating in the buyout while Bear Stearns ignored the bullish market. Other banks hired both externally as well as internally so they received other opinions and perspectives, but Bear Stearns only hired internally. Bear ignored concerns while others hedged for possible risk. While all the banks were losing money from CDO’s, Bear’s losses were the most looked at and brought the most fear.
2. How did Bear’s potential collapse differ from that of LTCM in the eyes of the Federal Reserve?
Bear Stearns had a chance to contribute to the bail out which may have saved them. The LTCM demanded high returns and the market could not satisfy these expectations. Bear should have learned from the LTCM collapse so one thing that differed is the banks had more knowledge after the collapse and should have done things differently. Also, it was a less turbulent market when Bear collapsed.
3. What could Bear have done differently to avoid its fate:
1. In the early 2000s?
In the early 2000s, Bear Stearns tried to issue shares that were later called “toxic waste” so the bank had to cancel the public offering. This most likely hurt their reputation and resulted in worried investors. Since people were withdrawing their money, Bear had to liquidate at a loss; the harm of this could have been lessened if Bear Stearns had set up more liquidity.
2. During the summer of 2007?
Bear Stearns should have reacted carefully to the negative events of the year and paid more attention to the direction they were headed. While other banks learned from the unsuccessful events of the LTCM, Bear was
1. What role did Bear’s culture play in its positioning vis-à-vis its competitors, and what role might that culture have played in its demise?
Bear Stearns played a risky role with the promise of high returns. Bear was participating in the LTCM and created a bubble. Bear’s competitors recognized and hedged against risk by participating in the buyout while Bear Stearns ignored the bullish market. Other banks hired both externally as well as internally so they received other opinions and perspectives, but Bear Stearns only hired internally. Bear ignored concerns while others hedged for possible risk. While all the banks were losing money from CDO’s, Bear’s losses were the most looked at and brought the most fear.
2. How did Bear’s potential collapse differ from that of LTCM in the eyes of the Federal Reserve?
Bear Stearns had a chance to contribute to the bail out which may have saved them. The LTCM demanded high returns and the market could not satisfy these expectations. Bear should have learned from the LTCM collapse so one thing that differed is the banks had more knowledge after the collapse and should have done things differently. Also, it was a less turbulent market when Bear collapsed.
3. What could Bear have done differently to avoid its fate:
1. In the early 2000s?
In the early 2000s, Bear Stearns tried to issue shares that were later called “toxic waste” so the bank had to cancel the public offering. This most likely hurt their reputation and resulted in worried investors. Since people were withdrawing their money, Bear had to liquidate at a loss; the harm of this could have been lessened if Bear Stearns had set up more liquidity.
2. During the summer of 2007?
Bear Stearns should have reacted carefully to the negative events of the year and paid more attention to the direction they were headed. While other banks learned from the unsuccessful events of the LTCM, Bear was