Credit Mess Weighs on Banks

By most accounts, firms such as Lehman and Goldman Sachs have managed to outmaneuver their competitors and also boast healthy international footprints that should bolster profits, even if the pace of growth retreats in the U.S.

For some financial institutions, however, rebounding won't be simple.

Reverting back to basics for CEO James Cayne's Bear Stearns may be a formidable task, if troubles in fixed income and mortgages persist. The firm is not as diversified as some of its competitors.

To be sure, relative to its peers, Bear maintains an international platform that is -- while aided by its newly forged relationship with China-owned Citic -- thin. About 15% to 20% of Bear's revenue is derived internationally, according to its most recent public filings. Lehman, Merrill and Goldman's international business revenues are at 50% or better.

Bear's onus, in the short to mid term, will be growing its operations while maintaining its reputation in the states. A series of lawsuits surrounding its now-bankrupt hedge funds poses a continued threat to its brand name -- and a costly one at that, given the roughly $60 million spent on defense.

At this point, Bear's $13 billion market capitalization is increasingly looking like an outright takeover for an enterprising foreign buyer.

And there's hardly any safety in size these days.

Citi, with a much larger market cap of about $156 billion, has made just as many subprime missteps as smaller firms. So much for the implied safety and security of a diversified financial institution; the architect of today's Citi, Sandy Weill, recently admitted to the Financial Times that the bank may have gotten too big. New CEO Vikram Pandit will have to outline explicit plans to better integrate the bank or face more pressure to break it up into two, three or four separate units. Pandit has already committed himself to re-examining all of the components of the big bank.

For Citi, Bear, Merrill and other financials, the hope is that the bulk of the bad news is history, but this mortgage mess has had an uncanny way of lingering.

>To order reprints of this article, click here: Reprints