Bear Stearns' Profits Rise 8% Despite Housing Slowdown

Bear Stearns Companies said this morning its Q1 2007 profit was up 8% on strong bond-trading revenues. Net income climbed from $514 million to $554m, on a rise in revenues from $2.19 to $2.48 billion. EPS climbed from $3.54 to $3.82, slightly higher than analyst estimates of $3.78. The rise in earnings comes despite its #1 place among underwriters of mortgage securities in a floundering housing market attests to its conservative approach to lending, Fortis Investments' analyst Guy-Max Delphin said. Its exposure to subprime lending is limited, and should have a maximum 5% adverse effect on earnings, according to a Fox-Pitt Kelton research note. Return on equity was 18.3%, down from 20.1% y/y. Fixed income revenue, including bond underwriting and trading, was up 27% to $1.1b. Revenue from underwriting went from $844m to $2.1b. Bear Stearns shares are down 11% in 2007, vs. a 5.8% drop in the 12-member Amex Securities Broker/Dealer Index. In pre-market trading, shares are up 0.1% to $145.35.

Sources: Press Release, MarketWatch, Bloomberg
Commentary: The Bear Stearns-NEW Connection: Time To Short Select Investment Firms • Asset-Backed Insecurities: Containing the Subprime Mortgage Collapse • Major I-Banks Near 'Junk' Status -- Bloomberg
Stocks/ETFs to watch: Bear Stearns Companies Inc. (BSC). Competitors: Morgan Stanley (MS), Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings Inc. (LEH), Merrill Lynch & Co. Inc. (MER). ETFs: streetTRACKS KBW Capital markets (KCE)

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