Bear Stearns Q4 profit up 38%
Bear Stearns, bolstered by higher trading and investment-banking revenue, said profit rose a better-than-expected 38% to a record in the fourth quarter.
By Agencies |
NEW YORK: Bear Stearns, bolstered by higher trading and investment-banking revenue, said profit rose a better-than-expected 38% to a record in the fourth quarter. Net income in the three months ended November 30 climbed to $562.8 million from $407 million a year ago, Bear Stearns said.
CEO James Cayne capped a fifth straight year of record profit as the biggest rally in US Treasuries since 2002 and an increase in credit-derivatives sales spurred a 25% quarterly increase in fixed-income revenue. A surge in corporate takeovers drove invest-ment-banking fees up 58%.
“This company is tied to the strength of the fixed-income market, and they’ve certainly benefited from a low interest-rate environment,” said William Fitzpatrick, an analyst at Johnson Asset Management. Revenue rose 13% to $2.41 billion, the second- highest ever after the record $2.5 billion in Q2.
Shares of the company rose $1.27 to $157.16 in composite trading on the New York Stock Exchange at 10 am. The stock gained 35% this year through yesterday, trailing Goldman Sachs Group and Morgan Stanley, and beating Merrill Lynch & Co and Lehman Brothers Hold-ings. All the firms are based in New York.
Securities firms are having their best year ever, with low interest rates and a fourth straight year of gains in the US stock market fuelling rec-ord mergers and acquisitions and the hottest year for initial public of-ferings since 2000.
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For the full year, Bear Stearns’ net income climbed 40% to $2.1 billion, as revenue rose 25% to $9.2 billion, the company said. Goldman Sachs Group said earlier this week that 2006 net income rose 70% to $9.54 billion. Lehman Brothers Holdings Thursday said profit climbed 23% to $4 billion. “I look forward to 2007 and our continued expansion both interna-tionally and domestically,” Cayne, 72, said in the statement. Total compensation for the firm’s 13,500 employees climbed 22% to $4.34 billion. On a per-employee basis, that works out to $322,000.
In the fourth quarter, the firm trimmed the share of revenue it paid em-ployees to 43.6% from 46.2% a year earlier, giving an added boost to profit. Next year, revenue at Bear Stearns is projected to increase about 2%, based on the average of nine analyst estimates.
“The question is how sustainable it is,” Johnson Asset’s Fitzpatrick said. “At some point the cycle is expected to take a dip.” Bear Stearns’ return on equity, a gauge of how effectively it reinvests earnings, was 20.5% for the fourth quarter and 19.1% for fiscal 2006.
A slowdown in the housing market reduced applications for new mortgages and refinancings, shrinking the pool of loans available to be packaged into bonds. Bear Stearns helped arrange $25 billion of mort-gage bonds of the highest credit quality in its fourth quarter, down from $35 billion a year earlier.
The malaise didn’t extend to trading. A daily average $291.8 billion of mortgage bonds changed hands during the quarter, 16% more than a year earlier, according to Sandler O’Neill. Bond yields fell during the quarter, triggering an increase in prices for mortgage-backed securities and leading some US banks to sell their holdings, said Alec Crawford, head of mortgage strategy at RBS Greenwich Capital in Greenwich, Connecticut.
Trading was bolstered by buying from investors outside the US, he said. “Mortgage-backed securities have been able to trade well despite con-cerns over the underlying housing market,” Crawford said.
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