Experimental feature

Listen to this article

00:00
00:00
Experimental feature
or

Trouble at Bear Stearns intensified on Thursday when the investment bank reported a quarterly loss – the first in its 84 years as a public company – that was nearly four times analysts’ forecasts.

Bear surprised investors with a $1.9bn writedown on its holdings of mortgage assets in its fourth-quarter results, a far larger decline than it forecast only a month ago. Jimmy Cayne, Bear’s chief executive, and other top executives have agreed to forgo a bonus for 2007.

The blow came as a Fox-Pitt, Kelton analyst forecast Merrill Lynch would take an $8.6bn writedown on mortgage positions in the fourth quarter, pushing its total writedowns to more than $16bn.

The news, combined with FedEx’s 6.3 per cent drop in quarterly profit and a disclosure by MBIA, the bond insurer, that it had $30.61bn in exposure to bonds backed by mortgages and collateralised debt obligations, sent the S&P 500 down 0.4 per cent to 1,447.22 before it recovered to close up 0.5 per cent.

Shares in MBIA plummeted more than 27 per cent after the details came to light. The reaction emphasised persistent anxiety about the creditworthiness of such insurers that continues to make it difficult for banks, companies and countries to borrow.

Bear said it lost $854m in the fourth quarter, or $6.90 per share, down from a profit of $563m, or $4.00 per share, last year.

Bear’s poor performance led ratings agency Moody’s to drop its long-term rating on Bear’s debt to A2 from A1, which is still an investment grade rating. In November, Bear had forecast a writedown of $1.2bn for the quarter and had said it reckoned the worst of its mortgage-related problems were behind it.

“Bear’s businesses are not as diversified on a product or geographic basis and its core fixed income trading and underwriting businesses will likely be negatively impaired for some time,” said William Tanona, an analyst at Goldman Sachs.

But the month turned into one of the worst in at least a decade for the fixed income markets. Bear’s holdings in mortgages and related securities fell further.

Analysts said the quarterly loss underscored Bear’s inability to offset declines in its US fixed income business with gains in other areas or from overseas.

Sam Molinaro, chief financial officer, said the company’s gross writedown in the quarter was about $3.2bn before hedges.

He also said Bear no longer had exposure to collateralised debt obligations on its balance sheet. Mr Molinaro added relations between Bear’s board of directors and senior management remained “very solid and very good”.

There has been speculation the board could seek to remove Mr Cayne, 73, as chief executive. People close to it have said while they continue to discuss possible successors, no change in leadership is imminent.

Copyright The Financial Times Limited 2017. All rights reserved.
myFT

Follow the topics mentioned in this article

Comments have not been enabled for this article.