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Extra3/17/2008 11:59 AM ET

Bear Stearns' plunge takes along billionaire

Briton Joseph Lewis is among a cadre of investors who took a financial battering when the besieged New York investment firm agreed to be sold for $2 a share.

By The Wall Street Journal

British billionaire Joseph Lewis made his fortune gambling on currencies. His recent investment in Bear Stearns (BSC, news, msgs) has turned out to be a disastrous bet.

The elusive septuagenarian is one the biggest losers from the New York investment bank's problems. In just a few months, he has lost almost all of the $1.1 billion he spent building up his roughly 9.6% stake in Bear, which agreed last night to be acquired by JPMorgan Chase (JPM, news, msgs) for just $2 a share.

A cadre of investors, often considered some of the best in the business, own big stakes in Bear that aren't looking good. A number of these shareholders are the type of investors who ordinarily would take a hard line in a sale, demanding a higher price. But with Bear on the brink, they have little choice.

Among the stakeholders: James Barrow, a Dallas money manager who runs the firm Barrow, Hanley, Mewhinney & Strauss, is the single biggest investor, with a 9.95% stake, according to recent regulatory filings.

Bear Stearns Chairman James Cayne, who stepped down as chief executive in January amid criticisms from some investors that he was too hands-off when the mortgage mess unfolded, holds a stake just under 5%. So does activist investor Bruce Sherman, CEO of Naples, Fla., money manager Private Capital Management, a unit of Legg Mason (LM, news, msgs), recent regulatory filings show.

Sherman, who persuaded the media company Knight Ridder to put itself up for sale in 2005, has taken a more active stance with Bear in recent months, say people familiar with the matter. He closely questioned Bear lead director Vincent Tese about the investment bank's problems last summer and made his dissatisfaction with Cayne clear to Bear officials in the weeks preceding Cayne's early-January resignation as CEO, these people said. Sherman's firm held 5.5 million Bear shares as of Dec. 31, or a 4.8% stake. Those 5.5 million shares now are valued at about $11 million, a fraction of what they were a year ago.

Sherman was unavailable to comment, a spokesman said yesterday. Lewis was unavailable to comment, a spokesman said. An assistant in Cayne's Bear office said he was in a meeting and unavailable for comment. Barrow didn't respond to a request for comment.

Lewis made his fortune as a currency trader, once amassing a 30% stake in auctioneer Christie's International, and has spent the past decade investing in an array of businesses, including real estate, oil and gas, and sports.

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Bear necessities
British billionaire Joseph Lewis lost an estimated $1.1 billion on the stake he built up in Bear Stearns last year. Employees lost an estimated $5.2 billion on the sale of the company.
Lewis, who lives in the tony Lyford Cay development in the Bahamas, got involved with Bear first as a client and became a major investor last year.

Lewis long has been a client of Kurt Butenhoff, one of Bear Stearns's heavy hitters in private-client services. Butenhoff brought the relationship with him to Bear from Salomon Bros., where Butenhoff was a high-net-worth broker in the early 1990s.

Lewis began rapidly building his stake in Bear Stearns last summer, shortly after the bank announced that two internal hedge funds had imploded. In December, his stake rose to just under 10% from about 7% when Bear's stock price fell below $110, forcing him to make good on an options trade he had made with another party.

Lewis could have sold his obligation to buy and washed his hands of an unlucky trade. Instead, he chose to exercise his options, filings show, acquiring hundreds of thousands of new shares. He owns more than 11 million Bear Stearns shares, according to a December regulatory filing.

Son of a cafe owner

Friday, Bear's shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading after the Federal Reserve and JPMorgan stepped in to keep the firm afloat following a severe cash crunch. It doesn't appear from reviews of regulatory filings that Sherman, Cayne, Barrow and Lewis have sold shares in recent weeks. It isn't clear whether any of them have hedged their investments.

Lewis, the son of a cafe owner in London's East End, started work there and later expanded the family business to create a small empire of theme restaurants. He acquired the nickname "the boxer" in part because his name is similar to boxing legend Joe Louis and also because of his shrewd approach to business.

Lewis's recent endeavors have included developments in central Florida, where he owns Isleworth and another gated community. About six years ago, Lewis purchased a stake in Tottenham Hotspur, a soccer club based in northeast London. Lewis, a keen golfer, hosts the Tavistock Cup tournament and has befriended golf star Tiger Woods.

This article was reported and written by Cassell Bryan-Low and Kate Kelly for The Wall Street Journal.

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