Bear Stearns Reports First Quarterly Loss on Mortgage Losses

December 20, 2007 No Comments »

Bear Stearns reported a larger-than-expected writedown in its mortgage portfolio, leading its first quarterly loss in its 84-year history.

The nation’s fifth-largest investment bank, who is also a mortgage lender, took a $1.9 billion writedown in the quarter ended November 30, significantly larger than its earlier estimate in November of $1.2 billion.

“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 revaluation of mortgage inventory,” Bear Stearns said in the earnings release.

The fiscal fourth-quarter loss after preferred dividends was $859 million, or $6.90 per share, compared to a profit of $558 million, or $4 per share, a year ago.

The company reported negative net revenue of $379 million, compared to revenue of $2.41 billion a year earlier.

It’s likely 2007 is a year Bear Stearns would prefer to soon forget, as profit during the year fell 90 percent from the year-ago period to a meager $212 million.

“We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses,” Chief Executive Jimmy Cayne said in a statement.

Chief Financial Officer Sam Molinaro said during a conference call with analysts that the company cut 1,400 jobs, or about 9 percent of its workforce during the quarter amid ongoing turmoil in the credit markets.

The firm incurred $100 million in severance costs as a result of the layoffs, but they will offset operating costs by more than $250 million, helping to boost profitability in 2008, Molinaro added.

Earlier this week, Bear Stearns cut another 150 jobs as it shut down its loan production operations in Irvine, CA.

The company is also being sued by Barclays, who claims Bear Stearns hid negative information about the performance of two subprime hedge funds the English bank had invested in.

Shares of Bear were down 16 cents, or 0.18%, to $90.44 in late morning trading on Wall Street, just narrowly above their 52-week low of $89.55.

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