Bear Stearns ( BSC) executives say the worst is over, but the New York-based firm is far from out of the woods.

Executives speaking at Bear's investor day said the firm doesn't need an equity infusion, despite abundant rumors to the contrary. They said Bear's fourth quarter should look better than its hard-hit third quarter, which isn't hard to believe.

All that said, investors mustn't overlook the dour big picture confronting the brokerage firm. Bear and all the big financial institutions will be facing a shrinking mortgage business and slowing economic environment -- perhaps for years to come. That prospect is bad for everyone, but for Bear it's a bigger problem because the mortgage business became such a significant revenue driver.

Bear has been the nation's second largest underwriter of mortgage-backed securities. Between 2002 and 2006, revenue from mortgage debt accounted for more than 21% of the company's $4.3 billion in revenue growth, according to a Bloomberg report.

A storm of tightening credit and escalating mortgage defaults has resulted in huge losses at some of the nation's largest financial institutions, including UBS ( UBS) and Lehman Brothers ( LEH).

So far, Bear has seen more financial pain than its peers. Earnings cratered 61% from a year ago in the third quarter. And its diminutive size -- Bear has a market capitalization of roughly $18 billion, compared to $33.3 billion at Lehman -- and lack of a significant international exposure haven't helped.

Bear has already announced plans to lay off 310 mortgage staffers, and market watchers anticipate that more job cuts could come as the securitization market retrenches.

The tortuous path ahead will press 73-year-old chief Jimmy Cayne to devise new ways to grow, despite rising competition and a tarnished reputation from losses in its asset management unit. The firm has admitted that its missteps with its hedge funds, which resulted in $200 million in losses, made it easy for its competitors to scoop up profitable prime brokerage clients.

Cayne struck a positive note during the conference, insisting the company will "weather the storm" and come out a "more diversified and a greater organization." But Bear's future will remain in question until it secures an international partner capable of enhancing its global footprint.

At this point, Bear has a $1 billion share buyback on deck to help reduce equity and help boost its flagging share price. But such a move will hardly be enough to please shareholders who have seen their shares lose 21% of their value this year.

Commenting to an analyst query, Cayne said Bear was not seeking an equity infusion from outside partners -- but it won't be long before it must.