Bear Stearns' Massive Fourth-Quarter Loss
By the Associated Press
Bear Stearns (BSC), the No. 5 U.S. investment bank, said Thursday a bigger-than-expected writedown in its mortgage portfolio caused the first quarterly loss in the company's 84-year history.
Bear Stearns also said members of its executive committee, including Chief Executive James Cayne, will not receive bonuses for 2007.
The fiscal fourth-quarter loss after paying preferred dividends was $859 million, or $6.90 per share, compared to a profit of $558 million, or $4 per share, a year earlier. The company had negative net revenue of $379 million, compared to revenue of $2.41 billion a year earlier.
The results broadly missed Wall Street expectations, as analysts were unable to get a handle on exactly how exposed Bear Stearns was to risky subprime mortgage securities. Analysts polled by Thomson Financial (TOC) had expected a loss of $1.79 per share on $625.1 million of revenue for the quarter ended Nov. 30. No analyst polled by Thomson expected a loss of more than $2.45 per share.
"We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses," Cayne said in a statement.
Cayne, under pressure like other chief executives on Wall Street, warned in November that the investment bank would take a $1.2 billion writedown from subprime-related investments and fixed-income trading. And, like rival firms, the losses ended up being much steeper.
Like Morgan Stanley's John Mack, Cayne will pass up a bonus that topped $40 million last year. It was not clear how much smaller, if at all, either man's bonus would have been this year.
On Wednesday, Morgan Stanley (MS) reported a $9.4 billion writedown from bad bets on mortgage debt, which triggered the first loss as a public company for the nation's second-largest investment bank. It also unveiled a $5 billion investment from China's state-run investment vehicle.
Bear Stearns agreed in October to a $1 billion investment from China's government-controlled Citic Securities.
Bear Stearns has undergone three waves of layoffs since two hedge funds it controlled collapsed during the summer. Some 1,500 jobs have been eliminated from its staff of around 15,500.
The company, one of the nation's biggest underwriters of mortgage-backed bonds, may be the Wall Street investment bank most directly exposed to this year's credit squeeze. It faces a number of legal actions related to the funds' collapse, including a suit filed this week by investor Barclays (BCS).
Bear Stearns said fixed-income net revenue was negative $1.5 billion in the fourth quarter. However, it did not disclose how much was actually lost before being offset by hedging activity.
Shares rose 82¢ on Dec. 20 to finish at $91.42. Bear Stearns' stock is down 42% for the year.