As the deals were being done in New York to try to save Bear Stearns, in London its 1,370 employees waited with bated breath.

Bear Stearns's European operation is best known for its prime broking business - the part of the bank that gives loans to hedge funds. It was also a creditable performer in fixed income and passable in equities, according to sources.

From its headquarters at One Canada Square, Canary Wharf, it had planned to expand its operations in London, where it lags most of its competitors, and the workforce was set to double to more than 2,500 in the next few years. Yesterday, however, those proposals hung in the balance. It has also agreed to move to 5 Churchill Place, Canary Wharf in mid-2009 but now that too is uncertain.

There were also rumours leaking out of dealing rooms that traders in London had been ordered by their firms to stop dealing with Bear Stearns. One credit trader said that at least six major financial institutions, including the Royal Bank of Scotland, JPMorgan, and Commerzbank, had stopped offering prices to Bear.Another broker said that Credit Suisse had also imposed a block on trading with the US bank.

The talk on the trading floors was that banks had gradually been withdrawing from dealing with Bear since suspicions heightened as to its safety on Thursday.

But the London Metal Exchange displayed its confidence in the bank. In a note circulated to its clearing members it said: “For as long as Bear Stearns remains a member of the LME and in good standing at the LME's clearing house, LCH. Clearnet, Bear Stearns will remain entitled to trade on LME Select.”

The bank's London operations are overseen by Michel Peretie, the chief executive of Bear Stearns Europe. He said less than five months ago that he was “extremely optimistic” about the bank's future, telling an interviewer: “Any investment bank will have to adapt to market conditions and it is true that the sector we won't push the most today is the mortgage sector.

“But we are still extremely optimistic about investment banking, advisory, M&A, equity and so on.”

Below him are Paul Abecassis, chairman of European investment banking, and Florian Lahnstein and Mark Goldstein, co-heads of the division.

Staff at the bank, however, were understandably nervous about their own prospects. “All our phone calls are recorded I'm afraid,” said one.

“I could lose my job if I spoke to you about this. I can't arrange to meet you and I can't give out my mobile number to you because the fact that I've done that will also be recorded.”

Declining fortunes

Jun 14, 2007 Bear Stearns reports second-quarter profits down 10 per cent to $486 million

Jun 22 Bear Stearns pledges up to $3.2 billion in loans to bail out two hedge funds hit by sub-prime losses and investor redemptions

Jul 19 Writes to clients informing them that two of its hedge funds contain “very little” or “effectively no value”

Aug 1 Two Bear Stearns hedge funds file for bankruptcy and another has its assets frozen

Sept 20 Reports third-quarter profit down 61 per cent to $171 million

Oct 4 James Cayne, chief executive, says: “Most of our businesses are beginning to rebound.” Alan Schwartz, president, says: “The market is in the early stages of a recovery”

Oct 22 Outlines an agreement with CITIC, of China, under which both will invest $1 billion in each other. The deal is now in doubt

Nov 28 Bear Stearns announces it will cut 650 jobs

Dec 20 Posts fourth-quarter loss of $854 million, the first quarterly loss in its 85-year history

Dec 20 Barclays sues Bear Stearns for allegedly misleading the UK bank over the performance of two collapsed hedge funds

Dec 28 Mr Cayne sells $15.4 million of the bank’s stock

Jan 9, 2008 Mr Cayne resigns as chief executive but stays as chairman; Mr Schwartz takes over

Mar 10 Bear Stearns states that “there is absolutely no truth to the rumours of liquidity problems that circulated today in the market”

Mar 12 Mr Schwartz says: “We don’t see any pressure on our liquidity, let alone a liquidity crisis”

Mar 14 Bear Stearns confirms it has secured a funding agreement with JPMorgan Chase and the Federal Reserve Bank of New York. Mr Schwartz says: “Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity. Amidst this chatter, our liquidity position in the last 24 hours had significantly deteriorated”

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