Bracing for Bear Stearns fallout


NEW YORK (JTA) – The UJA-Federation of New York is bracing for potential fallout from the collapse this week of Bear Stearns.

A cloud of uncertainty is hanging over the company after a run on its bank led to its controversial sale to JPMorgan Chase for pennies on the dollar Monday.

The sale, for $2 a share on stock that had been worth $89 a share last December, decimated the savings and retirement funds of Bear Stearns employees and wiped out salaries, the majority of which are often paid in year-end bonuses based on profits.

The collapse could have a broad-ranging negative effect in New York, as Bear Stearns is among the 25 largest employers in the city. Many of its 14,000 employees are Jewish.

The loss of salaries and the potential for mass layoffs could put a strain on the local nonprofit world here, the New York federation’s senior vice president, Paul Kane, told JTA.

“We feel horrible about this,” Kane said Wednesday in a telephone interview. “There were a lot of friends close to us in Bear Stearns, and this has big implications for us and others. It has huge implications for us and other nonprofits in this city.”

Bear Stearns, which lists philanthropy as one of its five guiding principles, is among the most charitable firms on Wall Street, donating about 4 percent of its profits to charity each year, Kane said.

He noted that the federation is one of its largest recipients, bringing in about $4 million annually in contributions from Bear Stearns employees.

The federation garnered about $40 million through its Wall Street division last year – a number that has soared in recent years as Wall Street recovered from the post-9/11 recession.

Bear Stearns was at the center of that advance. Its chairman, Alan “Ace” Greenberg, famously would act as the ringleader of the federation’s annual Wall Street dinner, standing on the dais, calling out names and publicly soliciting six- or seven-figure contributions.

In 2006, that banquet took in $21.5 million.

Sitting among stacks of paper, Kane tries to figure out the implications of the Bear Stearns collapse. The analysis will take several weeks, he said.

Some $30 million has been pledged to the Wall Street division for the 2008 fiscal year, which ends for the federation on June 30. While the federation typically collects on 94 percent of its pledges, there is no telling how a downward spiral in the market will affect that number.

The federation’s total campaign is up 5 percent compared to the same period last year, with $115 million in pledges. Last year the campaign brought in $151 million.

But the question is how the Bear Stearns collapse and its broader effect on Wall Street – analysts say that Lehman Brothers, another historically Jewish bank and significant donor to the federation – will affect the intake of dollars into the federation and the output of services it must provide to a new struggling class.

“We are again looking and analyzing numbers of Bear Stearns and Wall Street in general,” Kane said. “It is clearly going to have some level of impact on us.”

The federation has readied its service agencies and is making available job counseling services to those affected by the Bear Stearns crisis.

Even before the collapse of Bear Stearns, the broader dip in the economy already had led to an increase in demand for services in New York. In the last three months, the Metropolitan Council on Jewish Poverty has opened 40 cases due to the sub-prime mortgage crisis.

The FEGS Health and Human Service System has seen about a 20 percent increase in cases at its Brooklyn Resource Center, which serves a largely Russian clientele. The increase has come primarily from individuals in support positions in the finance industry and others who are worried about losing their jobs and starting to seek other opportunities.

As the UJA braces for impact, one notorious bear on the market, mega-philanthropist Michael Steinhardt, is warning that Jewish nonprofits shouldn’t panic yet.

Steinhardt said the Bear Stearns collapse will affect Jewish charities but not affect mega-donors like himself, a former hedge fund star who left Wall Street in 1995 with $500 million in assets to become a full-time Jewish philanthropist.

“In the microcosm it will have its effect, and broadly speaking, Wall Street will be affected, and of course we Jews have a disproportionate involvement in Wall Street,” Steinhardt told JTA in an interview Wednesday. “Philanthropy is viewed as a discretionary spending item and, for many people, if it is not the first, it is one of the first items to go.”

But he said that while some people have been wiped out recently, “most people are still pretty much whole.”

They may be looking at a decrease in salary this year, Steinhardt said, but not a catastrophe.

“You have to remember,” he said. “There is an old cliche that markets anticipate economic change, and that would suggest that much of what is going to happen has already been anticipated. The question is are we going to hit the floor.

“I don’ t think that things will easily get better tomorrow,” he said, “but I think we are possibly close to the floor.”

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