BUSINESS
03/28/2008 02:45 am ET Updated May 25, 2011

Can Schwartz Stop Bear Stearns' Stock Death Spiral?

Joseph Lewis' big bet on Bear Stearns is looking like a big mistake. Since the billionaire investor came on board last September, upping his stake three months later, the stock has been in a death spiral. The latest hit: a nearly 7% plunge following the expected news on Jan. 8 that James Cayne would step down as chief executive of the beleaguered investment bank. In all, Lewis, the single largest shareholder in Bear, has watched the value of his 10% stake erode from $1.2 billion to $840 million.

The 70-year-old Lewis has endured such losses before in his far-reaching and eclectic portfolio. The Tavistock Group, which he founded in 1978, has stakes in 170 companies that span the real estate, financial-services, manufacturing, entertainment, and restaurant industries. He uses at least five fast-moving investment funds -- Aquarian Investments, Nivon, Mandarin, Darcin, and Cambria -- to trade currencies and make more opportunistic moves like his Bear bet. And one of Lewis' hallmark strategies is to troll for cheap plays, then patiently wait years for the payoff. After buying Tottenham Hotspur, the English soccer team, at 80 pence in 2000, the club's stock dropped to 17 pence. Today, it trades at 138 pence.

Lewis may need to be long in patience with Bear, which took a $1.9 billion writedown from subprime-linked securities in the latest quarter. Bear's incoming chief, Alan Schwartz, has to figure out a way to revive the firm's core fixed-income business now that its bread-and-butter trading in mortgage-related investments is dead. Meanwhile, Bear faces scrutiny from securities regulators and federal investigators, after the implosion of two of its hedge funds last summer. "Bear became a one-trick pony, and now its business model is broken," says Dick Bove, analyst with research firm Punk Ziegel. "It's one of the worst investments of all time."

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