( BSC), one of the leading investment banks in the U.S., reported earnings on Wednesday that beat Wall Street's expectations by 14 cents.
But including a charge taken for a legal battle, the firm reported a 40% drop in net income for the quarter. Revenue also fell because weak securities markets spawned a hostile environment for new issues.
Shares of Bear Stearns rose 1 5/8, or 4%, to 42 1/2 in Wednesday midday trading. (They closed 1 3/8, or 3%, higher at 42 1/4.)
For the second quarter ended May 26, net income rose to $214.4 million, or $1.40 a diluted share, from $198.1 million, or $1.38 a share, a year earlier. The lowered consensus estimate of analysts polled by
First Call/Thomson Financial
was $1.26 a share. Sell-side analysts had reduced their estimates of late because of the downturn in the securities business.
But those figures exclude an after-tax charge of $96 million, or 63 cents a share, taken to bolster the firm's legal reserves. Last month, a federal jury ordered the New York-based securities firm to pay $111.5 million to Henryk de Kwiatkowski, a Canadian investor who contended that Bear Stearns was to blame for currency-trading losses he suffered in the mid-1990s. Bear Stearns plans to appeal the decision.
Including the charge, Bear Stearns reported net income of $118.4 million, or 77 cents a share.
Revenue fell to $1.32 billion from $1.36 billion a year earlier, largely because of a tumble in principal transaction revenues and investment banking revenues. The company attributed a 22.3% fall in principal transaction revenues, to $513.9 million, to "a generally weaker fixed income market characterized by rising interest rates and a widening of credit spreads."
Revenue for investment banking activity, such as the underwriting of equity and debt issues, dropped 3.5% to $235.8 million, due to "a fall-off in corporate bond underwriting activity, including high-yield and investment-grade debt."
"We achieved solid results this quarter, despite more volatile market conditions and declining trading volumes, predominantly in the fixed-income markets," said James Cayne, president and chief executive of Bear Stearns.
He attributed the decline in investment banking activity to "weakness in the
, particularly technology shares."