Dow Jones technical analysis

Bear Stearns Posts Loss After Subprime Writedowns (Update1)

By Yalman Onaran

Dec. 20 (Bloomberg) -- Bear Stearns Cos., the second- biggest underwriter of U.S. mortgage bonds, reported its first loss as a public company after writedowns for subprime-related investments and a drop in fixed-income trading revenue.

The fourth-quarter loss of $854 million, or $6.91 a share, in the three months ended Nov. 30 compared with net income of $563 million, or $4, a year earlier, the New York-based firm said today in a statement. The loss was almost four times wider than the average estimate of $1.82 a share from 14 analysts surveyed by Bloomberg.

Bear Stearns, led by Chief Executive Officer James ``Jimmy'' Cayne, said it would take a $1.9 billion writedown on subprime mortgages, more than the $1.2 billion the firm forecast last month. While the cost was smaller than at Citigroup Inc., Morgan Stanley and Merrill Lynch & Co., Bear Stearns slumped 44 percent this year in New York Stock Exchange composite trading, more than its New York-based rivals as the firm derives about half its revenue from fixed income.

``Their problem is they're not as diversified,'' said Tom Jalics, an analyst at National City Bank in Cleveland, who helps manage $34 billion, including Bear Stearns shares. ``They don't have a big overseas presence, big investment banking or equities presence. They're kind of a bond shop.''

Bear Stearns, which first sold shares to the public in 1985, helped trigger this year's crash in the market for home loans to people with poor credit after two of its hedge funds collapsed in July. About 30 percent of the firm's fixed-income revenue comes from mortgages and related securities, according to estimates from Sanford C. Bernstein & Co. analyst Brad Hintz.

Revenue Wiped Out

The firm doesn't provide a breakdown for mortgage-related revenue.

The fourth-quarter writedown wiped out the firm's revenue in debt sales and trading. Lehman Brothers Holdings Inc., the No. 1 underwriter of mortgage-backed bonds this year, reported $860 million of fixed-income revenue in the fourth quarter. Half of Lehman's 2007 revenue came from outside the U.S. That ratio has been lower than 20 percent for Bear Stearns.

Goldman Sachs Group Inc., the largest securities firm by market value, reported record fourth-quarter earnings of $3.22 billion. Morgan Stanley, the second-biggest, reported a loss of $3.56 billion yesterday, its first since going public in 1986. Merrill Lynch & Co., the third-largest, publishes results next month. All the firms are based in New York.

Waiting for Recession

Bear Stearns, the fifth-largest securities firm, said fourth-quarter revenue from equity sales and trading at dropped 11 percent to $384 million. Investment-banking fees fell 44 percent to $205 million. Clearing, which includes providing brokerage services for hedge funds, advanced 2 percent to $276 million.

Bear Stearns advised on $47 billion of takeovers in the quarter, triple the amount a year earlier, data compiled by Bloomberg show. The firm underwrote $7.3 billion of U.S. bonds, 17 percent less than last year. It managed $1.18 billion of equity offerings, a 28 percent decrease.

Bond shops like Bear Stearns would benefit from a possible a U.S. recession next year, Sanford Bernstein's Hintz said. During a recession, traditional investment banking activities such as mergers slow down to a halt, while interest rate cuts by central banks boost the price of bonds.

Succession

Because Bear Stearns relies less on investment banking and more on fixed income trading, it could benefit from an economic contraction, Hintz said.

Bear Stearns closed the two hedge funds that blew up and Cayne ousted his co-president, Warren Spector, whom investors considered the heir-apparent. The share price has suffered in part because there's no clear succession plan for the 73-year- old Cayne, said National City's Jalics.

``They've got a myriad of problems,'' Jalics said. ``On the asset management side, they've got reputational risk issues because of the funds that blew up. They're a bond shop so they have mortgage-related concerns. And all the negative stories about leadership, that's probably not a positive.''

Well there is the first piece of tonights puzzle.

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ithatheekret said:

Any takers on the US unemployment numbers ?


I'll stick my hand up for 332K .

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ithatheekret said:

What's that blue rectangle ? ........ the escape hatch

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Kauri said:

and vindicator suggests a turn may be around the corner..so stop now trailed at each prev bars high...

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