It is a sad, if familiar tale. A storied, blue chip company collapses and tales emerge of employees whose life savings have been wiped out. The same script is being replayed in the stunning collapse of Bear Stearns (BSC), where employees apparently owned a third of the company.
Bear’s employees would have had every reason to be confident in the investment bank - it has been around for 85 years, employed 14,000 people, sported a book value of $84 and 83 years of profitability. In a matter of days, the company agreed to a sell itself to JPMorgan for $2 per share, valuing the company at a mere $236 million. Its headquarters on Madison Avenue alone is valued at $1.2 billion.
Shell-shocked employees are now facing a double whammy: press reports (such as this report in the Wall Street Journal) indicate that some employees who had a significant portion of their savings in Bear stock are now wiped out and employees are wondering (according to this report in the New York Times) if they’ll keep their jobs or if they’ll get severance if they don’t. Another report on ABC News quotes James Stewart of Smart Money magazine:
These were secretaries. They don’t even live in Manhattan. They [are] commuting from New Jersey and Long Island and leading relatively modest lives and suddenly they’ve had major nest eggs wiped out.
It’s also surprising that it appears that bankers and brokers might be among those who lost their savings in Bear’s collapse. How is that people with a grounding in finances could take so much risk by investing a big portion of their assets in their employer’s stock? Bear’s collapse is yet again a reminder for the rest of us not to tie up too much of our savings in our employer’s stock.
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15 responses so far ↓
1 Aleks // Mar 18, 2008 at 7:13 pm
This is one of the reasons I sold all my employer’s stock last year and opted out of the stock purchase plan. The 5% discount was a nice incentive but the risk of having a sizeable percentage of my investments tied to the same company as my income outweighs it, in my opinion. I wouldn’t put all my money into a single company’s stock, and when it’s the company that pays my salary it makes even less sense.
2 Canadian Capitalist // Mar 18, 2008 at 7:30 pm
Aleks: A 5% discount isn’t very much. I participate in my employer’s ESPP because we receive a 15% discount. I always sell everything right away. IMHO, it’s just not worth the risk to hold too much company stock. How much is “too much” is, of course, dependent on individual circumstances.
3 MikeH // Mar 18, 2008 at 8:29 pm
Ditto, I always cash out as soon as possible. I try to avoid having more that 10% of my eggs in any one basket (excluding my home).
4 bear stearns’ cautionary tale — award tour // Mar 18, 2008 at 8:38 pm
[...] Bear Stearns’ Cautionary Tale “yet again a reminder for the rest of us not to tie up too much of our savings in our employer’s stock.” [...]
5 Silicon Prairie // Mar 18, 2008 at 9:08 pm
It looks like the media is trying to make people feel sorry for people who invested all their savings in their employer. How many reporters will actually try to remind people that not deserving this won’t bring back a bad investment?
6 Four Pillars // Mar 18, 2008 at 9:51 pm
I do feel sorry for the employees but if they had the option to move their money elsewhere then they should have.
So long B.S.! (very appropriate initials).
7 james // Mar 18, 2008 at 10:23 pm
They should renamed the company to “Bull Stearns”.
8 guinness416 // Mar 18, 2008 at 11:03 pm
I feel very bad for them too. The building on Madison is one of the nicer banking buildings I’ve been in in NY, it’s true Bear looked after its employees; I hope those that keep their jobs can at least stay there.
9 Canadian Capitalist // Mar 18, 2008 at 11:16 pm
I don’t feel sorry for these guys but it’s hard not to feel bad for rank-and-file employees.
10 Ryan // Mar 19, 2008 at 12:26 pm
I can’t believe that more everyday Americans are not screaming about the fact that they are the ones getting screwed when the Fed agrees to pick up the 28 billion dollar tab in order to get JP to buy BS just so that it appears as though BS did not go bankrupt. Also, what does this tell all the other big investment banks that are leveraged 30:1 and risk being wiped out. It tells them they can continue with their bad investments and when things do blow up…the Fed will come in and bail them out, while the American people pick up the tab. What a sham!
11 Gene // Mar 19, 2008 at 12:42 pm
Of course, there is the flipside of company stock, if it happens to be the right stock. There’s a lot of Microsoft millionaires, and those that bought and hold Dell or Walmart early on have done exceptionally well.
Just listen to Will Rogers:
“The way to make money in the stock market is to buy a stock. Then, when it goes up, sell it. If it’s not going to go up, don’t buy it!”
12 telly // Mar 19, 2008 at 1:14 pm
A few years ago my company enacted a rule that we could not hold more than 10% of the company’s stock in our individual 401k plans. About 6 months ago, the board of directors voted to change that value to 0%. Makes sense to me. But part of the problem is that companies are not required to make such restrictions, despite what happened to former employees of Worldcom and Enron. There was talk of regulators tightening up pension laws but it just hasn’t happened yet. It’s up to the individual companies.
It’s easy for someone with financial intelligence to know that having 50-100% of your retirement fund in your company stock is a really bad idea but the truth is, many people just don’t pay attention. They’re told that if they continue to max out their 401k every year that they would be able to retire comfortably. And the truth is, they should. But when company’s are still matching contributions with company stock, and don’t regulate how much of that stock their employees hold in their 401k’s, you have to expect stuff like secretaries losing their retirement savings because of companies like Bear Sterns, and even worse, Enron & WorldCom.
I do feel sorry for them. Not everyone has the time nor interest in financial planning to learn everything and I find it sad when people that take the BEST first step (maxing out retirement contributions) get burned due to lack of knowledge. Would I be reading financial forums, blogs and newspapers if I was a single mom of 3 with a low income job? Likely not. But I’d be equally deserving (if not more) than the current me to be comfortable in retirement.
13 Big Cajun Man // Mar 19, 2008 at 1:47 pm
I guess these folks didn’t really learn from past mistakes, like in the high tech bubble, when folks lost all their money at Worldcom and other less high profile companies? Paper Millionaires became paupers over night.
Unless you work for a bank, I wouldn’t hold that much stock in anywhere I work. Wait a minute, those folks at Bear Stearns were at a bank, weren’t they? Never mind!!!!!
Your company pays your salary, sets up your benefits and if they give you free money for some investment vehicles, you should take advantage of those.
–C8j
14 Aleks // Mar 19, 2008 at 3:36 pm
If I could take advantage of the ESPP discount and sell shares to keep my portfolio balanced, I would. However my employer is apparently too smart for that; selling shares automatically gets you kicked out of the plan for a year.
15 James // Mar 20, 2008 at 9:38 am
Aleks,
Sounds like you and I work for the same company.
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