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Updated from 9:56 a.m. EDT

A 22% jump in

Bear Stearns'


third-quarter profits helped to assuage fears that

J.P. Morgan's

(JPM) - Get Free Report

dismal outlook presaged a Wall Street meltdown.

Bear Stearns "certainly hasn't seen the dramatic difficulties that J.P. Morgan has and I think most of the other brokerages will be closer to the Bear Stearns outcome," said David Trone, an analyst at Prudential Securities. "It appears to us that J.P. Morgan will be alone in its misery, though it's all a matter of degree."

On Wednesday, Bear Stearns said sharp cost reductions and higher stock trading commissions helped offset weaker investment banking revenue in its most recent quarter.

Activity in the mortgage-backed securities market also continued to be strong due to the low interest rate environment helping the firm to report net income of $164.4 million, or $1.23 a share, compared with $134.6 million, or 95 cents a share, a year ago. Thomson Financial/First Call had forecast a profit $1.22 a share.

"It was a pretty positive quarter in a difficult environment," noted Jeffery Harte, an analyst at Sandler O'Neill.

Costs Managed

Although net sales fell to $1.15 billion from $1.2 billion last year amid a 37.3% drop in investment banking revenue, the firm managed to reduce expenses by 9% to $909.2 million.

During a conference call, Bear Stearns said that it has cut about 654 jobs, or 6% of its workforce, over the past year. That's far below the level of cuts from other investment banks, which have shed thousands of jobs amid brutal market conditions.

Going forward, the company's chief financial officer, Sam Molinaro, said he expects continued strength in the mortgage-backed securities business but believes investment banking will most likely remain sluggish. The firm doesn't intend to cut any more positions through the end of the year, but said it will continue to seek ways to reduce expenses.

Bear Stearns is the first of the Wall Street investment banks to release earnings.

Morgan Stanley


will report its results Thursday followed by

Lehman Brothers



Goldman Sachs

(GS) - Get Free Report

next week.

Clearing Up

During the quarter, Bear Stearns said securities trading commission revenue rose 11% from last year while institutional customers' stock trading sales jumped 22%. The company also increased its quarterly cash dividend by 13% to 17 cents.

The news came as a welcome relief, particularly after J.P. Morgan said Tuesday night that third-quarter profits would fall "well below" the second quarter's performance because of a sharp decline in trading revenue and credit losses.

"It's a little hard to believe that

J.P. Morgan's trading revenues could be that bad and it only be their problem," said Harte. "But they painted a much darker trading picture than I've heard from other brokerages."

Salomon Smith Barney analyst Guy Moszkowski agreed, saying that while J.P. Morgan's troubles -- especially those related to corporate credit spreads -- have affected the entire industry, the issues "seem uniquely severe for that firm relative to what we expect from the investment banking and brokerage firms we follow."

Still, Brad Hintz, an analyst at Sanford Bernstein, believes that investors shouldn't read too much into any of the results released so far. He noted that Bear Stearns derives a higher portion of its revenue from mortgage-backed securities than other brokers and is a smaller player in the investment banking field. J.P. Morgan, meanwhile, has been more severely impacted than others by nonperforming loans to telecom firms.

"We know the month of July was about as bad a trading environment as you could get and anyone in high yield or distressed bonds or corporate bonds found themselves on the wrong side of the market, so some companies will have been able to navigate through that and some won't."

Bear Stearns was down 0.17% to $59.40 while J.P. Morgan shed 9.5% to $19.45. Lehman Brothers and Morgan Stanley were down 2% to $52.40 and $38.10, respectively. Goldman Sachs was off 1.7% to $69.65.