The Enron Dilemma

It’s been nearly a month since Bear Stearns & Co, once one of the most prominent banks on Wall Street, collapsed, leaving its investors and employees wondering where to place blame.

On Wednesday, March 12, Bear Stearns’ Chief Executive Alan D. Schwartz went on CNBC to confront doomsday rumors and reassure anxious investors that the firm had ample liquidity. He said he was “comfortable” that the brokerage would turn a profit in its fiscal first quarter.

He was wrong.

At 5 a.m. Friday, Bear executives woke the federal reserves chairman Ben Bernake and his associates to discuss the matter. Their solution? Securing an emergency agreement with JP Morgan and the federal reserve bank of New York in the largest- ever bailout of a U.S. securities firm. The following Friday, the company told regulators it was ready for bankruptcy.

According to Reuters, Bear Stearns’ market value fell after the bank agreed on Sunday to be bought by JP Morgan Chase at a price of $2 a share. On Friday, Bear Stearns’ stock had closed at $30.85. The shares Tuesday closed up 22.9 percent at $5.91, suggesting some were closing out short positions or believe the firm could fetch a higher price.

According to Forbes.com, in wake of its collapse, Bear Stearns is now readying for litigation, and maintains its avowal that the liquidity problems hit after it said nothing was wrong.

The SEC is investigating the statements made by Schwartz last Wednesday that Bear was “comfortable” and far from having a liquidity crisis, mere days before the collapse. AP reports that regulators “haven’t ruled out legal action over potentially misleading comments.” Also, Bear amended their bylaws to cover legal expenses, which looks questionable at the very least.

New York City Comptroller William Thompson was also concerned about Schwartz’s comments, and has announced city plans to investigate whether the failure of Bear Stearns & Co. was due to foul play. He told Reuters, “I think a lot of people are going to be taking a look. Was there some deception in there or was this just a miscalculation?”

Although perhaps not as dramatic as the collapse of Enron, an former corporate giant that, due to insider trading and deceitful fiscal statements to employees and investors, went bankrupt almost overnight, leaving thousands with bank accounts in the negative thousands.

Organizations such as Bear Stearns and Enron find themselves in a classic Catch-22 situation. To expose financial struggles to the general public and investors could mean a fall in stock prices, but to cover financial woes, as Enron and perhaps Bear Stearns did, could result in a devastating collapse for the company as well as all of its stakeholders. Most financial gurus can certainly look at disappointing fiscal results and understand that their company is headed for trouble, but seldom probably know how to deal with their company’s problems in the media.

Enter public relations. I hope that Bear Stearns has hired the sharpest, most acute public relations team in New York City, or even in the world for that matter. Since its demise, the bank has received more bad press than Britney on a bad day. Not only will its PR team have to explain the collapse to the media, but it also will have to comfort the bank’s 14,000 employees whose financial stability has been slammed, and even the college students who planned on interning at Bear Stearns with hopes of jump starting their careers. A strong PR campaign will certainly not remedy this monumental fallout, but could be a last resort at saving any sense of decency Bear Stearns wishes to preserve. For Bear Stearns right now, PR is not just a commodity, it’s a must.

Although the bank itself has virtually collapsed, I’m sure its former executives want to defend the Bear Stearns name as much as possible against the scathing world of reporters and media who want to tear it down.