Bear Growls at Subprime

Updated from March 29

Bear Stearns(BSC) expects to see a slowdown in subprime lending volume in 2007.

At an annual investor conference at the company's Madison Avenue headquarters, Bear Stearns mortgage officials said Thursday the firm had rolled back subprime lending activity last year within its mortgage division by 50% from 2005. They said the subprime represents less than 3% of Bear's overall mortgage business.

Tom Marano, head of mortgages and asset backed securities, predicted industrywide subprime lending volume would drop by 30%.

A swoon in the so-called subprime market has hammered crippled mortgage lenders such as New Century (NEWC), Accredited Home Lenders (LEND) and Fremont General (FMT). Lenders have been hit by rising defaults and delinquencies, leading to steep losses. The troubles in the business of lending to customers with weaker credit histories also has crimped performance at investment firms that sponsored the business.

Many investment banks had stakes in mortgage lending with subprime ties, including Lehman Brothers (LEH), Goldman Sachs (GS) and Morgan Stanley (MS).

"No company would [reduce their position] if they thought there was any money-making opportunity there. Their actions are telling you that there's a substantial problem there and they don't want to have any part of it," says Punk Ziegel analyst Dick Bove in Tampa, Fla.

Media representatives at Bear Stearns were unavailable to comment.

Although Bear Stearns posted solid first-quarter earnings earlier in the month, the subprime collapse cast a pall.

During its earnings call earlier, Bear Stearns pointed to the mortgage sector as the source of some pain, as subprime caused "weakness in the U.S. residential mortgage-backed securities market."

Outside of subprime, Bear Stearns' performance was buoyed by its capital markets and fixed income businesses.

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