Subprime crisis in US claims president of Bear Stearns

The subprime lending crisis in the US continued to cast its shadow over financial markets yesterday and claimed its highest profile scalp in the form of Bear Stearns' president and co-chief operating officer Warren Spector, who was forced to resign.

Also yesterday American Home Mortgage Investment filed for Chapter 11 bankruptcy protection, completing a rapid descent for a large US home loan provider that lent to people considered to be good credit risks.

The filing came after American Home closed most of its operations on Friday, laying off all but about 750 workers. It said it had started the year with more than 7,400 employees.

Global fears of a credit crunch that punished European and Asian markets were bucked when US stocks rebounded yesterday in a rally driven by bargain hunting, though the dollar and oil both succumbed to concerns the economy was braking.

The dollar fell to a 15-year low against a basket of major currencies, responding to views that the Federal Reserve might cut its benchmark 5.25 per cent interest rate later this year if credit concerns pinch economic activity.

The US central bank meets today, and though it is expected to leave rates unchanged, it might signal a policy change by modifying its policy statement.

Mr Spector's departure follows Bear Stearns' assertion on Friday that it is weathering the worst storm in financial markets in more than 20 years after a major rating company warned mortgage credit problems could hurt the investment bank's profits.

Standard & Poor's warned that the recent collapse of two Bear Stearns-managed mortgage funds could hurt the company's performance and reputation for an extended period.

The collapse of the funds triggered a downturn across credit markets, put a damper on corporate buyout financing and sparked fears about Wall Street's trading and banking profits.

Mr Spector's departure is a blow to Bear Stearns because he was regarded as a possible successor to chairman and chief executive James Cayne.

Mr Cayne said in a statement: "In light of the recent events concerning BSAM's high grade and enhanced leverage funds, we have determined to make changes in our leadership structure." Bear Stearns said Alan Schwartz had been appointed the company's sole president and Samuel Molinaro will become chief operating officer as well as chief financial officer.

Bear Stearns spooked investors on Friday by saying it has halted share buybacks to preserve capital as it faces the most difficult debt markets in more than two decades.

It held a hastily arranged conference call on Friday after S&P changed its rating outlook on the company to "negative" from "stable", flagging a greater chance of a credit downgrade in the next two years. However, the conference call seemed to exacerbate investor's fears as the company's stock lost about 6 per cent on Friday.