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Mortgage Losses Maul Bear

The investment bank swings to a loss amid increased writedowns on mortgage-related securities.

Updated from 8:57 a.m. EST

Bear Stearns


swung to a much-larger-than-expected fourth-quarter loss exacerbated by an increased writedown on mortgage-related securities.

For the three months ending Nov. 30, the New York investment bank reported a loss of $854 million, or $6.90 a share. That compares with a profit of $563 million, or $4 a share, in the year-earlier period. Bear Stearns reported a revenue loss of $379 million in the quarter.

Analysts were predicting a loss of $1.79 a share in the quarter, according to Thomson Financial.

For the full year, profit fell 89% to $233 million, or $1.52 a share, while revenue dropped 36% to $5.9 billion. Analysts were expecting a profit of $6.69 a share on revenue of $6.95 billion.

Bear Stearns reported writedowns totaling $1.9 billion, $700 million higher than the company originally disclosed in early November, it said.

Following the lead of

Morgan Stanley

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CEO John Mack on Wednesday, Bear Chairman and CEO James Cayne said members of Bear Stearns' executive committee will not receive bonuses for 2007, due the poor results.

"When Bear Stearns became a public company, consistent with our entrepreneurial roots and to ensure alignment of interests between management and shareholders, we designed our executive compensation programs to pay for performance," Cayne said. "In a year in which we produced unacceptable results, the plans are working as they were designed -- and the members of the executive committee will not receive any bonuses for 2007."

Investors largely shrugged off the news, as Bear shares opened higher. The stock was recently up fractionally to $91.49.

Bear Stearns' capital markets business, which includes institutional equities, fixed income and investment banking, lost $956 million in the fourth quarter, down from $1.9 billion in the year-earlier period.

The brokerage firm said that its institutional equities business, down 11% to $384 million, had "record results" in international equity sales and trading and that strong results were offset by lower results in structured equity products.

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Investment-banking revenue dropped 44% in the quarter to $205 million, reflecting lower fees in fixed income underwriting but offset by strong merger and advisory fees.

Fixed-income revenue posted a loss of $1.5 billion. The company said that the "continued repricing of credit risk and the severe dislocation in the structured products market led to illiquidity in the fixed income markets, lower levels of client activity across the fixed income sector and a significant revaluations of mortgage inventory."

"We are taking appropriate measures to position Bear Stearns for renewed profitability in 2008 by focusing our resources on the businesses with growth potential in the current environment, while streamlining our operations in areas with lower expected activity levels," Cayne said.

Bear's poor results come on the heels of similar recent horrors among its Wall Street brethren. Morgan Stanley on Wednesday also swung to a loss, as it

posted $9.4 billion in mortgage-related writedowns, more than twice what it had previously estimated.

Massive writedowns earlier this year at


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Merrill Lynch


led to the departures of CEOs Charles Prince and Stanley O'Neal, respectively. Merrill, whose fiscal year ends in two weeks, will report earnings in January.

David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said in a note Thursday Merrill's fourth-quarter writedowns could be $8.6 billion, more than the firm had previously anticipated.

Trone cut his estimates on Merrill to a loss of $4.07 a share from a profit of $1.51. Analysts, on average, expect Merrill Lynch to post a loss of 95 cents a share in the quarter.

Among other Wall Street firms to report fourth-quarter results,

Goldman Sachs

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Lehman Brothers


stayed out of the red, but Lehman posted smaller profits than the year-ago quarter and took an $830 million fourth-quarter writedown.