Record Year in Institutional Equities, Global Clearing Services and Private Client Services
Fourth quarter loss reflects net mortgage-related write downs of $1.9 billion
December 20, 2007 // Franchising.com // NEW YORK, NY — The Bear Stearns Companies Inc. (NYSE:BSC) reported results today for the fiscal year and the fourth quarter ended November 30, 2007. For the fiscal year the company reported $1.52 earnings per share (diluted), compared with $14.27 for fiscal 2006. Net income for the fiscal year was $233 million compared with $2.1 billion earned in fiscal year ended November 30, 2006. Net revenues for the 2007 fiscal year were $5.9 billion, compared with $9.2 billion in the prior fiscal year. The after-tax return on common stockholders' equity was 1.8% for fiscal 2007.
In early November the company announced that it anticipated write-downs of approximately $1.2 billion in mortgage inventory net of hedges. At November 30, total net inventory write-downs were $1.9 billion. These write-downs served to reduce fourth quarter earnings per share (diluted) by $8.21. Including these write-downs the company reported a loss for the fourth quarter ended November 30, 2007 of $6.90 per share1. For the comparable fourth quarter of 2006, the company reported earnings per share (diluted) of $4.00. The net loss for the fourth quarter of 2007 was $854 million as compared with net income of $563 million for the fourth quarter of 2006. Net revenues for the 2007 fourth quarter were a loss of $379 million down from revenues of $2.4 billion for the 2006 fourth quarter.
"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," said James E. Cayne, chairman and chief executive officer. "Our underlying fixed income franchise remains strong and we have taken steps to size the division to market conditions. We are taking appropriate measures to position Bear Stearns for renewed profitability in 2008 by focusing our resources on the businesses with growth potential in the current environment, while streamlining our operations in areas with lower expected activity levels. We are confident that these efforts will ensure Bear Stearns remains a strong and profitable competitor in the global marketplace in the years to come."
"When Bear Stearns became a public company, consistent with our entrepreneurial roots and to ensure alignment of interests between management and shareholders, we designed our executive compensation programs to pay for performance. In a year in which we produced unacceptable results, the plans are working as they were designed -- and the members of the executive committee will not receive any bonuses for 2007."
A brief discussion of the firm's business segments follows:
Net revenues in Capital Markets, which includes Institutional Equities, Fixed Income and Investment Banking, were a loss of $956 million in the fourth quarter of 2007, down from net revenues of $1.9 billion in the fourth quarter ended November 30, 2006.
* Institutional Equities net revenues were $384 million, down 11% from $430 million in the fourth quarter of 2006. Record results from international equity sales and trading and continued strong results from domestic equity sales drove this quarterly performance partially offset by reduced performance in structured equity products.
* Fixed Income net revenues were a loss of $1.5 billion, down from net revenues of $1.1 billion in the fourth quarter of 2006. The continued re-pricing 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. Total write-downs were $1.9 billion in the quarter net of hedges.
* Investment Banking net revenues were $205 million in the fourth quarter of 2007, down 44% from the $364 million in the comparable prior-year period. This decrease reflects lower fees from fixed income underwriting which were partially offset by continued strong merger and acquisition activity levels.
Capital Markets net revenues were $3.9 billion in fiscal year 2007, a decrease of 46% from the $7.3 billion reported in 2006.
* Institutional Equities net revenues in the 2007 fiscal year were up 10% to a record $2.2 billion from $2.0 billion in fiscal 2006. International sales and trading, risk arbitrage and principal strategies all delivered record results.
* Fixed Income net revenues were $685 million in 2007, down from $4.2 billion in 2006. Results for 2007 were heavily influenced by the severe market conditions across the fixed income sector. More broadly, the re-pricing of credit also led to significantly lower net revenue levels due to illiquidity in the markets as trading activity levels deteriorated across the spectrum of fixed income products.
* Investment Banking reported net revenues of $1.1 billion in fiscal 2007, down 8% from $1.2 billion in the prior fiscal year. Increases in equity underwriting and higher transaction volumes in advisory areas were more than offset by lower fixed income underwriting net revenues and merchant banking results.
GLOBAL CLEARING SERVICES
Fourth quarter 2007 Global Clearing Services net revenues were $276 million, up 2% from $271 million in the fourth quarter of 2006. Net interest revenues increased due to higher margin debt balances. Average customer margin debt balances for the quarter ended November 30, 2007 were $82.1 billion, up from $72.0 billion in the prior year quarter. Customer short balances averaged $84.6 billion during the fourth quarter of 2007, down from the prior year fourth quarter average of $90.0 billion.
Net revenues for the 2007 fiscal year in Global Clearing Services were a record $1.2 billion, up 11% from $1.1 billion in fiscal 2006. Net interest revenues increased due to higher average customer margin debt and average customer short balances. Average customer margin debt balances in 2007 were $90.3 billion compared with $68.4 billion in the fiscal year ended November 30, 2006. Customer short balances averaged $95.6 billion during the 2007 fiscal year, up from the average of $82.6 billion for the 2006 fiscal year.
Wealth Management net revenues were $272 million in the fourth quarter of 2007, up 10% from $247 million in the fourth quarter of 2006.
* Private Client Services net revenues were a record $161 million in the fourth quarter of 2007, an increase of 20% from $134 million in the 2006 quarter. Increased equity in client accounts, higher client activity levels and the continued growth in fee-based assets drove the quarterly revenue increase.
* Asset Management net revenues were $111 million for the fourth quarter of 2007 down slightly from $113 million in the prior year quarter. Performance and management fees increased compared with the year ago period but were offset by reduced principal gains.
Wealth Management net revenues were $830 million in fiscal 2007, a decrease of 3% compared with $858 million in fiscal 2006.
* Net revenues from Private Client Services rose 15% to a record $602 million for the 2007 fiscal year from $522 million for fiscal 2006. Higher performance and management fees due to strong performance and higher levels of fee-based assets drove record results.
* Asset Management reported net revenues of $228 million in the 2007 fiscal year, down 32% from $336 million in the prior year. The decline resulted from write-offs associated with receivables from and investments in the hedge funds, and lower management fees related to proprietary hedge fund products. Assets under management decreased due to a transfer of assets to a newly formed minority-owned affiliated asset manager and reductions in alternative assets under management. As of November 30, 2007 assets under management decreased to $44.6 billion from $52.5 billion as of November 30, 2006.
* Compensation expenses were $326 million in the quarter ended November 30, 2007, down 69% from $1.1 billion in the 2006 quarter.
* Non-compensation expenses were $666 million in the 2007 quarter, up 42% from $468 million in the 2006 quarter. The increase is related to severance and legal expense as well as higher occupancy fees, professional fees, and communications and technology costs.
* In the fiscal year ended November 30, 2007, compensation as a percentage of net revenues was 57.6% as compared with 47.1% for the 2006 fiscal year.
* Non-compensation expenses for the fiscal year 2007 were $2.3 billion, 34% higher than the $1.7 billion reported in 2006. Expenses rose due to higher occupancy expenses, professional fees, and communications and technology costs associated with increased headcount as well as a write-down of intangible assets, representing goodwill and specialist rights of Bear Wagner Specialists and severance charges included in other expenses.
For fiscal year 2007 the pre-tax margin was 3.2% versus 34.1% in fiscal year 2006.
As of November 30, 2007, total capital, including stockholders' equity and long-term borrowings, was $80.3 billion. Book value on November 30, 2007 was $84.09 per share, based on 136.2 million shares outstanding. The company repurchased approximately 12.0 million shares of its common stock at a total cost of $1.7 billion during fiscal 2007.
Quarterly Common Stock Cash Dividend Declared
The Board of Directors of The Bear Stearns Companies Inc. declared a regular quarterly cash dividend of $0.32 per share on the outstanding shares of common stock payable January 25, 2008, to stockholders of record on January 15, 2008.
Quarterly Preferred Stock Cash Dividends Declared
The Board of Directors of The Bear Stearns Companies Inc. declared the following regular quarterly dividends: (i) a cash dividend of $3.075 per share on the outstanding shares of 6.15% Cumulative Preferred Stock, Series E (which is equivalent to 76.875 cents per related depositary share); (ii) a cash dividend of $2.86 per share on the outstanding shares of 5.72% Cumulative Preferred Stock, Series F (which is equivalent to 71.50 cents per related depositary share); and (iii) a cash dividend of $2.745 per share on the outstanding shares of 5.49% Cumulative Preferred Stock, Series G (which is equivalent to 68.625 cents per related depositary share); all payable January 15, 2008 to stockholders of record on December 31, 2007.
1Due to the net loss in the fourth quarter of 2007, unvested units and stock options from stock compensation awards were not included in the computation of diluted net loss per share because to do so would have been antidilutive. The full year diluted earnings per share computation includes the dilutive effect of weighted average CAP plan and restricted stock units, together with the dilutive effect of stock options. The exclusion of such unvested units and stock options in the fourth quarter increased the computation of loss per share by $.62 per share.
About Bear Stearns
Founded in 1923, Bear Stearns (NYSE: BSC) is a leading financial services firm serving governments, corporations, institutions and individuals worldwide. The Company's core business lines include institutional equities, fixed income, investment banking, global clearing services, asset management, and private client services. Headquartered in New York City, the company has approximately 14,000 employees worldwide. For additional information about Bear Stearns, please visit the firm's Web site at bearstearns.com.
Certain statements contained in this discussion are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those discussed in the forward-looking statements. For a discussion of the risks and uncertainties that may affect the company's future results, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Management" in the company's 2006 Annual Report to Stockholders and similar sections in the company's quarterly reports on Form 10-Q which have been filed with the Securities and Exchange Commission.
A conference call to discuss the company's results will be held on December 20, 2007, at 10:00 a.m., (ET). Those wishing to listen to the conference call should dial 1-800-374-2412 (or 1-706-634-7253 for international callers) at least 10 minutes prior to the commencement of the call to ensure connection. The conference call will also be accessible through our Web site at http://www.bearstearns.com. For those unable to listen to the live broadcast of the call, a replay will be available on our Web site or by dialing 1-800-642-1687 (or 1-706-645-9291 for international callers) at approximately 1:00 p.m. E.S.T. The pass code for the replay is 26183824. The replay will be available until midnight on January 4, 2007. If you have any questions on how to obtain access to the conference call, please contact Anthea Zeimann at 1-212-272-4417 or via email at firstname.lastname@example.org.