Bear Stearns said that, effective immediately, Alan Schwartz has been named the company's sole president.
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.
Spector's departure is a blow to Bear Stearns because he was regarded as a possible successor to Chairman and Chief Executive James Cayne. One analyst said Schwartz is now a strong contender to succeed Cayne.
Cayne said in a statement on Sunday: "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 also said that chief financial officer Samuel Molinaro will also become chief operating officer, and that Jeffrey Mayer, co-head of the fixed income division, has been named to the Bear Stearns executive committee.
Schwartz joined Bear in 1976 and was named president and co-chief operating officer in June 2001.
Molinaro joined Bear Stearns in 1986 and 10 years later was promoted to CFO. Mayer joined Bear in 1989, and has been co-head of the global fixed income division with Craig Overlander since 2002.
Richard Bove, a bank analyst at Punk Ziegel & Co., said that as head of Bear Stearns' fixed income and asset management divisions, Spector was the executive most directly responsible for the recent failings in these businesses.
Bove said Spector may have made some questionable judgment calls, but in a note to clients Bove said he believed that some Bear Stearns peers made similar judgments and that it seemed clear top management also took part in these decisions.
Bove said Bear must now prove to its creditors that it can meet their demands to be paid back. The analyst said Bear will withstand the onslaught about to begin on its balance sheet.
"I do strongly believe that Alan Schwartz should be made CEO of the company, immediately," added Bove. "He is undoubtedly one of he smartest men I have met on Wall Street."
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.
Bear Stearns 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.
While the conference call was aimed at soothing investors' fears, the call, featuring CFO Molinaro and, briefly, CEO Cayne, seemed to exacerbate them as the company's stock lost about 6 percent on Friday.