Third-quarter net income dropped 61 percent to $171 million, or $1.16 a share, in the three months ended Aug. 31 from $438 million, or $3.02, a year earlier, the New York-based firm said today in a statement. Profit fell short of the average estimate of $1.79 a share from 14 analysts surveyed by Bloomberg.
Bear Stearns, led by Chief Executive Officer James ``Jimmy'' Cayne, said revenue from fixed-income sales and trading slumped 88 percent amid ``extremely challenging'' market conditions. The decline was steeper than at Lehman Brothers Holdings Inc. and Morgan Stanley because Bear Stearns depends more on the U.S. for profits. Goldman Sachs Group Inc., the biggest securities firm, said today that profit surged 79 percent, after the sale of a power company boosted revenue.
``Bear Stearns is in the worst shape on Wall Street because it has the most exposure to fixed income and least to international markets,'' said Matt Albrecht, a New York-based equity analyst at Standard & Poor's who recommends selling Bear Stearns shares. ``Their reliance on the mortgage market isn't going to help as that market continues to roil.''
Revenue fell 38 percent to $1.33 billion in the third quarter from $2.1 billion last year. Return on equity dropped to 5.3 percent from 16 percent a year earlier, trailing Lehman's and Morgan Stanley's 17 percent.
Bear Stearns, founded in 1923, was battered as U.S. foreclosures for subprime mortgages rose to a record in the second quarter. About 30 percent of Bear Stearns's fixed-income revenue comes from mortgages and related securities, according to estimates from Sanford C. Bernstein & Co. analyst Brad Hintz. The firm doesn't provide a breakdown for mortgage-related revenue.
``They're going through an environment that's designed as badly as they could imagine,'' said Hintz, who has a ``market perform'' rating for the stock. ``Fixed income will recover slowly, and along with that their earnings will too, but it will take time.''
Bear Stearns closed two hedge funds because of mortgage- related losses, leading to the ouster of Co-President Warren Spector on Aug. 5. Spector, 49, was viewed by analysts as the most likely successor to the 73-year-old Cayne.
The collapse of the funds caused $200 million of losses and ``expenses'' in the quarter, the firm said.
``The third quarter was characterized by extremely difficult securitization markets and high volatility levels across asset classes,'' Cayne said in the statement.
The ``re-pricing of risk'' in credit markets led to a ``significant'' decline in revenue and asset values, the firm said without elaborating.
Shares of Bear Stearns dropped 29 percent this year, the worst performance of the five biggest U.S. investment banks. The stock has declined this week, making it the only one in the group to not get a boost from the Federal Reserve cutting its benchmark interest rate by half a percentage point. Bear Stearns fell 84 cents to $114.80 in before-market trading in New York.
The company's board approved a plan to buy back up to $2.5 billion of shares, including $1 billion from the open market. The firm bought $1.3 billion of stock under the previous plan to repurchase as much as $2 billion.
Morgan Stanley, the world's second-biggest securities firm by market value, reported a 7 percent drop in profit from continuing operations yesterday, a steeper decline than analysts estimated, because of losses on loans for leveraged buyouts and a decline in fixed-income trading revenue.
$8.8 Billion Commitment
Goldman Sachs said today that net income rose in the third quarter to $2.85 billion, or $6.13 a share, from $1.59 billion, or $3.26, a year earlier. Earnings beat the $4.35-a-share average estimate of analysts surveyed by Bloomberg, the seventh straight quarter that Goldman has surpassed expectatio...