By all accounts Alan Schwartz, who is widely expected to replace James Cayne as Bear Stearns’s chief executive, is the best man for the job. He has been at the firm for 30 years, is well liked by staff, has contacts all around the world and, in contrast to Mr Cayne, is a consensus-builder.

Nontheless, as one former colleague put it, “he has a tremendous amount of wood to chop”. The main problem does not lie in the flurry of court cases that the firm faces as shareholders and lenders allege that Bear was not entirely honest about the extent of the dangers posed by its sub-prime related investment portfolio. Nor is it with the bank’s capital base, which, although hardly strong, is less weak than some competitors after it received a $1.1 billion (£557 million) injection from CITIC Securities.

The real problem is Bear Stearns’s narrow focus, much of it in areas decimated by America’s mortgage meltdown. A lot of the group’s growth in recent years came from packaging high-risk, sub-prime mortgages into complex instruments such as collatoralised debt obligations (CDOs). Banks and investors have lost billions of dollars on such instruments in recent months and their loss of reputation means that the market for them has virtually vanished.

Every Wall Street firm profited handsomely by packaging and trading mortgage-related securities and will suffer badly at the loss of such a profitable income stream. For Bear Stearns it will prove a particular blow, since its exposure to mortgages and related securities is so much higher as a proportion of its revenues. Meanwhile, Bear Stearns trails well behind its rivals on Wall Street in traditional areas of investment banking, such as equity underwriting and mergers and acquisitions advice.

Bear Stearns clearly needs a huge overhaul. There is a consensus that it should sell some investments to strengthen its balance sheet and expand its international presence.

As for the next chief executive to go, that is anybody’s guess. Lloyd Blankfein is secure at Goldman Sachs, since the firm made a profit by shorting mortgages, and John Mack recently received a vote of confidence despite massive sub-prime losses at Morgan Stanley. Richard Fuld at Lehman Brothers also looks safe. Experts say privately that not a lot of people on Wall Street have yet to “fess up” to their sub-prime mortgage woes, making further senior resignations likely in the coming months.

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