Streak Continues at Bear Stearns

Third-quarter earnings wipe out estimates on strong trading and underwriting revenue.
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Bear Stearns

(BSC)

reported Wall Street's second stellar quarter in as many days, saying profits in the three months to Aug. 31 rose 34% from a year ago thanks to strong stock trading and underwriting revenue.

The New York investment bank earned $378.3 million, or $2.69 a share, in the third quarter, compared with $283.3 million, or $2.09 a share, a year ago. Analysts were expecting earnings of $2.38 a share, according to the mean estimate compiled by Thomson First Call.

Net revenue rose 18% from a year ago to $1.81 billion, about $50 million ahead of the analyst consensus. By segment, capital market revenue rose 15% from a year ago to $1.4 billion; net revenue in clearing services rose 15% to $258 million; and net revenue in wealth management rose 21% to $169.6 million.

"Bear Stearns continues to perform well in every area," the company said. "Our fixed-income division is more diversified, our banking effort broader, our client relationships stronger and our talent pool deeper than ever before. The balanced nature of our business mix remains a driver of our excellent results throughout shifting market cycles."

Within capital markets, revenue in institutional equities, where Bear Stearns makes markets for clients like mutual funds and pensions, revenue rose 43% to $333.6 million. The performance reflected strong results in takeover speculation, equity derivatives and domestic and international sales.

Fixed-income revenue slipped 4% from a year ago to $774.0 million, as strong results marketing interest-rate derivatives were partially offset by slightly weaker credit and mortgage-related businesses.

In investment banking, revenue rose 65% to $229.9 million, as underwriting and merger services sold briskly.

Within its clearing business, where Bear provides back-office stock trading services to hedge funds and other institutional clients, higher margin debt and short-sale balances were partially offset by lower commission revenue from prime brokerage. Short balances averaged $81.3 billion in the quarter, up from $75.6 billion last year.

The bank did a good job holding down costs in the quarter, with compensation as a percentage of net revenue totaling 47.0% in the quarter, down from 48.4% a year ago. Bear's pretax profit margin was 32% in the third quarter compared with 28.9% a year ago.

Bear Stearns' stock, which is up 21% over the last year and 41% over the last two years, fell $2, or 1.9%, to $103.50 early Thursday. The price is 10.5 times this year's Thomson First Call earnings estimate and 10.3 times next year's.

Bear's report follows a

similarly upbeat third quarter reported Wednesday by

Lehman Brothers

(LEH)

.

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MWD)

will report their results in coming days.