Bear's Q3 Profits Eclipsed by Credit Crunch

As expected by the Wall Street analysts, the US investment bank Bear Stearns Companies Inc. on Thursday reported heavy loses for the third quarter. Shattered by the collapse of two hedge funds in the sub-prime mortgage crisis, Bear Stearns announced that its third-quarter profit dropped 61 per cent.

The New York City, US-based Bear Stearns, which conducts business through its wholly owned subsidiaries, is one of the Wall Street firms that faced credit crisis during this summer.

Last month, two Bear Stearns Cos. hedge funds, The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd. and the Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd., had have filed for protection under Chapter 15 of the federal bankruptcy code.

Badly affected by the recent credit market crunch, Bear Stearns reported a 61 per cent drop in third-quarter net income to $171.3 million, or $1.16 a share, down from $437.56 million, or $3.02 a share, in the year-ago quarter. Net income applicable to common shares for the quarter fell to $166.10 million from $432.24 million in the previous-year period.

Bear's loss can be attributed to the diminished fixed-income revenue coupled with a $200 million loss from its June hedge fund failures.

Bear Stearns, the fifth-largest U.S. investment bank, said its net revenue plunged 38 per cent to $1.33 billion from $2.13 billion a year ago, while net revenue at the fixed-income division fell 88 per cent, to $118 million from $945 million in the previous-year quarter.

While announcing company’s lowest quarterly profit in five years, James Cayne, chairman and chief executive officer of Bear Stearns said, “The third quarter was characterized by extremely difficult securitization markets and high volatility levels across asset classes. While our fixed income results clearly reflect these market conditions, we reported solid revenues in Investment Banking and record revenues in Global Equities and Global Clearing Services.”

Contrary to Bear’s eclipsed quarterly results, New York-based Goldman Sachs Group Inc. (GS) reported a superlative performance by the company in the quarter. It posted a 79 per cent rise in third-quarter profit, apparently driven by strong results in its investment banking, currency, and commodities divisions.

The group said its net income for the third quarter has jumped to $2.85 billion or $6.13 per share from $1.55 billion or $3.26 per share in the year-ago period, while total revenues for the period grew to $23.8 billion from $15.9 billion in the same period a year-ago. Net revenues for the quarter were $12.33 billion, up from $7.58 billion in the previous-year quarter.

Bear’s quarterly results came days after British billionaire Joseph Lewis announced it has taken a 6.97 percent stake worth $860.4 million in the bank. The Bank hopes Lewis’ investment in the bank would likely support the bank's finances and help slow the rapid decline in its shares, which are down about 35 percent this year after bad mortgage bets caused two of its proprietary hedge funds to collapse this summer, costing investors over $1bn.

Founded in 1923, Bear Stearns currently employs more than 13,500 persons worldwide, and serves corporations, institutions, governments and individuals. It is one of the few investment banks that have stayed independent and not ever merged with any other bank.

Bear Stearns' business includes corporate finance, mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services.

It was recognized as the “Most Admired” securities firm in Fortune’s “America’s Most Admired Companies” survey, and second overall in the security firm section, during 2005 to 2007 period.