(First of two parts)
Ace Greenberg still comes into the office at 8:30 every morning, and he has no plans of slowing down — even though he will turn 83 this year.
After all, he likes what he's been doing since he was 21, when he came to New York from Oklahoma City. At that time, the Dow was 180, and a mere 800,000 shares changed hands in a day on the New York Stock Exchange.
"I enjoy it. If I didn't enjoy it and didn't think I was productive, I wouldn't do it," Greenberg said in an interview at his midtown Manhattan office.
The former Bear Stearns chief executive these days is a vice chairman emeritus at JPMorgan Chase. He still works with clients — he has retained all but one, who was lost during the credit crisis that felled the firm Greenberg was synonymous with for several decades.
He was asked what prompted him to pen his book, "The Rise and Fall of Bear Stearns," which will be published next month — a look back at his career and how JPMorgan Chase absorbed Bear Stearns in March 2008. Greenberg said it was a riposte to William Cohan's 2009 account of Bear Stearns' fall, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street."
Greenberg said his own book is "absolutely factual."
"There is no hocus pocus here," he said. "Some of the really big issues I took umbrage with [in Cohan's book]."
Much of Greenberg's anger is rooted in the fact that Cohan's book relied heavily on interviews with James Cayne, Greenberg's successor as CEO. One quote Cayne supplied for that book: "There isn't anybody that will tell you he [Greenberg] is an honest guy. There isn't anybody who will tell you he's sincere. There isn't anybody that would tell you they choose him as their best man, or best friend." Then there is Cayne's assertion that Greenberg forced partners to grovel for their bonus checks, as well as Cayne's recollections of how senior managers at Bear decided to take the firm public in 1985.
Greenberg's memoir does not only take issue with Cohan, it also addresses a Vanity Fair story that said Greenberg "freaked out" when his firm's liquidity problems filtered through Wall Street.
In his book, Greenberg says he did not lose his cool and the only time he freaked out was in grade school, when his mother had him wear knickers to school in Oklahoma City. "Many of my classmates still lived on farms ... For some reason, my mother couldn't understand how knickers might be a social liability in a school where many of the other kids didn't have shoes," Greenberg recalled in his memoir.
Like Greenberg's collections of previously published memos — actual missives sent out when he was CEO of Bear that often admonished thrift — the new book is humorous and, at times, quirky.
Indeed, Greenberg's memoir ends on a humorous note that is atypical of business books: "It seems like yesterday that my father called me aside at the train station and said, 'I'll give you three pieces of advice: never makes fun of a millionaire, never hit a cripple, and never have sex with an idiot.' To the best of my knowledge, I've remembered all three.'"
The following are excerpts of IDD's interview with Greenberg earlier this month, which will be presented in two parts.
In this first segment, the Wall Street veteran offers his take on changes in investment banking, attempts to regulate Wall Street, the vitriol leveled at the finance industry, and why Bear Stearns' was better off not filing for bankruptcy protection.
IDD: So, the independent investment bank is extinct?
Greenberg: It's gone. It's very simple. The old-fashioned investment bank used their capital to help their clients. They would take on issues and have the client take them out either by stock or bonds six months later ... What came through loud and clear in terms of if things get rough, an investment bank cannot stand a run. It cannot.
And Goldman Sachs, despite their unbelievable ability to make money in everything else, they found themselves at the mercy of a run. As you know, they went to Warren Buffett and immediately borrowed money. They sold stock to the public, and they became a bank.
If you are a bank, you don't have to worry about a run. If you are solvent, the Fed will back you up. If you are an investment bank, you are on your own. So the investment bank is gone. It doesn't work. It's shown that it doesn't work. We were one of the five investment banks that were left standing after hundreds had failed. The five that were left, every one of them had to change to survive.
We had to be taken over by JPMorgan. Merrill Lynch was going under, and they were taken over by Bank of America. Lehman went bust. Both Goldman Sachs and Morgan Stanley became banks with an entirely different group of regulators.
So what you will have is strictly brokerage firms doing business, being alive and being fine. You'll have boutique investment banks who don't take positions and don't have securities and don't risk anything.
In fact, they have become very popular now, because if a corporation decides to buy another company, the independent directors want an investment bank representing them, the non-independent directors want an investment bank, the company wants an investment banker. There must be six investment banks involved now for everybody's protection, because they don't want to have their ass kicked in. So the boutiques are doing fine now.
IDD: Is this a permanent change in the landscape? Will the boutiques always be there?
Greenberg: Yes. Litigation is such a factor in our business. I think the boutiques are going to survive. I think the brokerage firms are going to survive, and the investment banks — there are none. There won't be any.
IDD: Can't you make the argument that Jefferies is an independent investment bank?
Greenberg: No. It's a very small trading operation. I'm not maligning them, believe me. They are still here, and we're not. I think they did a marvelous job. But no — they don't run the risks that the investment banks did. I give them credit for it, or else they'd be out of business. The slack will be taken up by the commercial banks.
IDD: I'm still surprised that you are sure that the independent investment bank is permanently gone.
Greenberg: If Goldman Sachs couldn't make it, who can? With their record, they couldn't believe there was a run on Goldman Sachs. They couldn't believe that their clearance accounts were leaving them for JPMorgan. And, they were.
IDD: With rules coming down the pipeline about prop trading, what do think happens to banks?
Greenberg: I don't want to comment on that. There is legislation being proposed, as you know. I'm sure JPMorgan has their own feeling about that, and it's important, and I don't want to say anything that will contradict anything they are saying. So I'm just going to say I'll leave that to JPMorgan.
I personally think that it's ridiculous that they are trying to cut off the things that the banks really make money at and they are good at and leaving them with something that's very difficult, which is lending money to people, which is a very difficult business. You know your upside is very limited. All you do is get your money back, plus a small return. If you're wrong, you lose a lot. So I'll leave that to the management at JPMorgan.
IDD: Your reminiscences about your father and his thoughts on extending credit were interesting — not extending too much, offering just enough. We seem to swing between extremes when it comes to lending. Do you think a big part of that is the Fed's rate policy?
Greenberg: Well, the Senate also was very demanding of Freddie Mac and Fannie Mae about lending money to people. They were pushing them to make these loans that turned out to be ridiculous. These people didn't have the money or the means to buy a house, and not everybody should own a house. A lot of people should rent.
If you look back at the history of Freddie Mac and Fannie Mae, some of the people now that are raising the most fuss about [them] are the people that were pushing them to make loans they shouldn't. I won't mention names.
IDD: Are you surprised at the vitriol being leveled at Wall Street right now?
Greenberg: Well, the demagogues are having a field day, and the administration has said loud and clear, "The banks have to pay back more, they are the cause of all this." The banks did borrow some money from the Fed. They did pay it back with interest and with a hefty return.
I don't know of any other program the United States government has entered into that got [them] their money back with interest and a return of over 30%.
Now they want the banks to make up, I guess, for what the government lost when they lost $14 billion on Chrysler and General Motors during the last stage of the Bush administration. That's gone. That has nothing to do with the $60 billion General Motors owes them now. The $60 billion, they'll get something back. Whether they get it all back, it depends on the market.
So the demagogues are having a field day. They incite middle America against them, and they don't know what they are talking about.
IDD: When you look at how Lehman went into bankruptcy, do you ever think what would have happened if Bear had filed for bankruptcy?
Greenberg: You go into bankruptcy, you're dead. You are over with. Your life is finished. If you're taken over by another company, you are alive. You have a chance to participate. We got common stock. If the stock, if JPMorgan goes to $100, it's great. We own stock. There is no comparison. That's what I said at that meeting. I don't care if the offer is 50 cents, take it. Anything to stay alive. If you are alive, good things can happen to you. If you are dead, nothing good can happen to you. Maybe you go to heaven. Maybe you don't. That's something I'm not going to get into.
IDD: I bring this up because of how Lehman was absorbed by Barclays through a court sale.
Greenberg: Lehman went into bankruptcy, and their assets, some were picked up by other people. Neuberger Berman was picked up, and Barclays picked up something. But nobody wanted to buy Lehman, because they had a balance sheet that made ours look good. They really owned so much junk. Raw land. It was worth nothing.