The culture at Bear Stearns played a significant role in its positioning vis-à-vis its competitors and may have contributed to its demise. This company was known for high-stakes gambling and risk-taking, leading to heavy participation in the subprime market. Bear’s high-risk culture led to Bear becoming overleveraged and eventually to collapse in 2007, when the subprime mortgage market crashed.
Bear could have made several moves in order to avoid this fate. It could first have lessened its exposure in the subprime market for mortgages, and not increased its market presence. It would also have minimized the risk of significant loss in case there was a downturn. Second, it could have been transparenter with shareholders and investors regarding its risk level and potential outcomes of business decisions.
Bear should have taken steps to decrease its leverage, strengthen its balance sheets and raise capital via equity offerings or the sale of assets during 2007. It would have been possible for the company to weather market turmoil and avoid collapse.
Bear should have taken immediate action during the week March 10th 2008 to reach a deal for a merger/acquisition with a bigger and financially stronger institution. This could have provided a lifeline and a way to avoid the company’s downfall.