We believe that based on the Company's level of involvement in subprime lending and the broader impact on global credit markets, a material adverse impact on the Company's financial condition, results of operations or liquidity is reasonably possible.
Wait. I know what you are thinking. You were going to say something like this: So What? Everyone on Earth knows that Bear's mortgage exposure was a pretty big factor in the collapse of the investment bank.
In his investor day speech later that morning, CFO Sam Molinaro expanded on Cayne's compelling value comment. Molinaro gave a detailed presentation to investors and analysts to show them why the price decline created an investing opportunity. Molinaro's argument was based on a comparison of Bear's then current price to book value ratio and Bear's similar price-to book calculations during a series of prior market crises.
In each prior instance, the stock had quickly rebounded and investors who bought shares during other crises realized substantial gains. The problem with Molinaro's explanation was that Bear's true book value was really much lower than reported.
In any event, Bear Stearns' executives kept pushing silver lining scenarios through 2007 and early '08. This strategy was rational from their personal perpectives because these guys owned a lot of stock. They had a vested interest in propping up the share price up for as long as they could.
--MISREPRESENTING EXPOSURE TO MORTGAGE RISK