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Traders Found Threat to Bonuses Unbearable: Source

A dozen to 20 employees have left Calpine Merchant Services Co. in recent weeks, according to one former employee, and at least some of those people will surely wind up at Bear Energy LP, the new Houston-based energy trading group being launched by Bear Stearns, Calpine's former partner in the now-defunct CalBear energy trading venture.

The former employee, who asked to remain nameless, speculated that what started the exodus at bankrupt Calpine and the dissolution of CalBear was management's fumbling of 2005 bonuses for traders: they were going to get bonuses, then not, then amounts different from those originally expected. Traders and managers balked, then walked, eroding the value of the CalBear venture, which prompted Bear Stearns to pull out, ending it all. It's likely that quite a few more will be leaving in the days ahead, the source said.

NGI was told that there is a nonsolicitation agreement between Bear Stearns and Calpine to prevent Bear Stearns from raiding Calpine of employees post-CalBear Energy. (CalBear staffers were all Calpine employees, working on both CalBear and Calpine business.) However, last week Bear Stearns advertised in the Houston Chronicle for energy trading staff, and NGI's source speculated the help-wanted ad was intended to give cover to Calpine staffers who want to go work at the new Bear Energy.

Going forward, Bear Stearns plans to be a player in energy markets through a shop it will build itself and call Bear Energy. "We'll grow the staff in proportion to the level of business," Bear Stearns spokesman Russell Sherman told NGI. The operation will be headed up by Francis Dunleavy and Eli Wachtel, both Bear Stearns senior managing directors, he said.

Bear Energy will retain the existing contracts of CalBear and build upon that business. Bear Energy will not own power plants and will be strictly a financial player, Sherman said. He would not give any projections for the notional volumes of gas and power Bear Energy expects to be trading. NGI's source said it's quite likely that Bear Energy will enter physical energy markets some time in the future. Bear Stearns has a private equity arm called Arroyo Energy Investors, which owns power plants, Sherman said. However, he said the assets were not connected to the Bear Energy trading start-up.

Paul Posoli was the Calpine executive vice president named to head the CalBear venture. He left the company abruptly last month. When CalBear was formed he told NGI that the new company would greatly expand Calpine's market position, about 3% of the gas and power markets.

Bear Stearns certainly is not the only financial/banking player in the gas and power markets. Merrill Lynch, Morgan Stanley, Societe Generale, UBS, Bank of America, Goldman Sachs and Citigroup are others active in energy.

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