Bear Stearns Profit Up

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Bear Stearns'

(BSC)

first-quarter profit inched higher, but the subprime mortgage fallout still cut into the business.

Bear made $553.7 million, or $3.82 a share, in the quarter ended Feb. 28, up from $3.54 a share a year ago. Revenue rose 13.6% to $2.48 billion.

Analysts were predicting the company would earn $3.80 a share on $2.49 billion of revenue.

Bear's capital markets business, its largest contributor, rose 15% to $1.96 billion.

Fixed-income revenue jumped 27% to $1.15 billion, sparked by "record" results in credit derivatives, distressed debt and interest rate products, which reflected "increased volatility and higher customer volume," the New York investment bank said.

But residential mortgage-related revenue decreased from the prior-year period, "reflecting weakness in the U.S. residential mortgage-backed securities market," Bear said.

In addition, equities trading rose just 2.6% to $512.6 million from the prior year.

Investment-banking revenue rose 2.6% to $303 million. Bear said that while equity underwriting and merger-and-acquisition activity remained strong during the first quarter, private equity revenue fell.

Goldman Sachs

(GS) - Get Report

and

Lehman

(LEH)

also reported solid results for their fiscal first quarters. But like Bear, Lehman also showed signs of weakness from its mortgage exposure. Although Lehman's total mortgage operation accounts for just 3% of the business, the firm disclosed that both subprime mortgage originations and "global securitizations" dropped in the quarter.

Both Goldman and Lehman are looking for opportunities to benefit from the fallout of the subprime sector. Lehman's CFO Chris O'Meara said on a conference call on Wednesday that it would look to purchase certain portfolios or teams of lenders.

"The U.S. subprime mortgage market will continue to face headwinds in the near term,

but we are now seeing an industrywide decease in capacity in the subprime sector and the beginnings of the return of pricing power," O'Meara said. "We believe we are well positioned to benefit from this evolving situation given our experience in this sector as well as our ample liquidity and risk management practices."

Shares rose 21 cents to $145.50 in premarket trading.