Bear Stearns sees rebound in fortunes

Bear Stearns executives said the bank’s fortunes were improving after a tumultuous summer, aided by the Federal Reserve’s decision to cut interest rates and improving conditions in the US fixed income market.

“Most of our businesses are beginning to rebound,” said Jimmy Cayne, Bear Stearns chief executive. “I’m confident that Bear Stearns will weather the storm and come out a stronger, more diversified and greater organisation.”

Bear shares have plunged as the bank, the biggest Wall Street player in the US mortgage market, suffered amid the credit market squeeze and rising defaults on high-risk home loans. Bear also endured the embarrassing collapse of two mortgage-related hedge funds run by its asset management unit.

Despite the upbeat comments, made at an analysts meeting, Bear shares closed down 0.67 per cent at $127.61 in New York.

Bear last week reported a 61 per cent decline in third quarter earnings and there has been widespread speculation that the bank would seek an outside investor, possibly an Asian bank, to take a large equity stake to shore up the balance sheet and give it more of a presence outside the US.

Tom Marano, global head of mortgages, said investor appetite was improving. “Obviously it was a tumultuous summer. But it definitely feels better,” he said. “Volatility has come down and we have seen significant purchases from investors all the way down through the non-investment grade tranches of deals. ... I am cautiously optimistic” about the fourth quarter.

Mr Marano added that the market would need to see more rate cuts. “We need another 100 basis points,” he said. He added that while the bank has laid off about 540 workers it has hired loan loss mitigation specialists, many of whom go door to door to counsel troubled homeowners.

Alan Schwartz, Bear Stearns president, said the fixed income market was beginning to recover and that the Fed’s decision to cut rates by 50 basis points helped ease investor anxiety.

He also cited the bank’s ability to sell on leveraged loans, including for the $26bn buyout of First Data, as a signal that markets were stabilising. He said if the US economy does not tip into recession, corporate mergers and acquisitions should rebound and equity underwriting should improve.

Jeff Lane, who recently took over the bank’s asset management business, said he did not believe the bank held any positions that would damage its balance sheet and profits.

He said the unit is losing $8bn in assets in the fourth quarter due to the departure of a James O’Shaughnessy, a star fund manager. But he said the bank would continue to receive some of the fees on the assets.