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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Paul Kern who wrote (82710)	6/14/2007 8:34:58 AM
From: Paul Kern	Respond to of 110194

Bear Stearns Profit Drops 10 Percent as Mortgage Bonds Slump By Yalman Onaran June 14 (Bloomberg) -- Bear Stearns Cos., the second-biggest U.S. underwriter of mortgage bonds, said earnings declined 10 percent, the first quarterly drop in two years, as mounting home- loan defaults reduced trading revenue. Second-quarter net income, excluding a one-time charge, dropped to $486 million, or $3.40 a share from $539 million, or $3.72, a year earlier, the New York-based company said today in a statement. Profit fell short of the average estimate of $3.51 a share in a survey of 14 analysts by Bloomberg. Fixed-income revenue, which typically accounts for almost half of Bear Stearns's total, fell as delinquencies on U.S. loans to homebuyers with poor credit or heavy debt loads rose to a four-year high. Lehman Brothers Holdings Inc., the largest underwriter of mortgage bonds, reported record profit on June 12. ``There's been mortgage-related concerns about Bear Stearns since the market started souring,'' said Bill Fitzpatrick, who helps oversee more than $1 billion at Racine, Wisconsin-based Johnson Asset Management, which holds Bear Stearns shares. ``Hopefully, we've bottomed up in that area and will see a recovery in coming quarters.'' Bear Stearns's fixed-income revenue, which includes mortgage-bond underwriting and bond trading, fell 21 percent to $962 million in the second quarter. Revenue from equity sales and trading decreased 3 percent to $543 million, and fees from investment banking climbed 28 percent to $357 million. Return on Equity Total net revenue rose to a record $2.51 billion. Analysts were estimating that Wall Street earnings would be the lowest in two years, even after the U.S. Securities and Exchange Commission allows the industry's five biggest firms to use more of their capital to trade. Shares of Bear Stearns, led by Chief Executive Officer James Cayne, have declined 8.2 percent this year, the worst performance on the 12-member Amex Securities Broker/Dealer Index. Sales of mortgage-backed bonds in the U.S. fell 19 percent in the second quarter from a year earlier, according to estimates from analysts at New York-based Sanford C. Bernstein & Co. Bear Stearns, the fifth-biggest U.S. securities firm by market value, helped arrange $29 billion of collateralized mortgage obligations in the period, down from $31 billion a year earlier, data compiled by Bloomberg show. CMOs are mortgage bonds with the highest credit quality. Bear Stearns is liquidating holdings from one of its hedge funds because of money-losing bets in the subprime market, said three people with knowledge of the matter. The firm is seeking bids today from prospective buyers for about $3.8 billion of mortgage bonds, said the people, who declined to be identified because the plan isn't public. Hedge Fund The 10-month-old Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund, which is down about 20 percent this year, had about $600 million of investors' money and borrowed to increase its buying power, one of the people said. Bear Stearns took a $225 million charge in the second quarter to write down the value of its Bear Wagner Specialists LLC unit. Net income, which takes into account the writedown, was $362 million, or $2.52 a share. The firm helped arrange $11.5 billion of takeovers in the second quarter, down from $51.1 billion a year earlier, according to Bloomberg data. Its biggest transaction was advising Sabre Holdings Corp. in its $4.4 billion acquisition by a group of private-equity firms. Bear Stearns underwrote $864.9 million of equity offerings, about half what it handled a year earlier, including the initial public offering of MetroPCS Communications Inc., a prepaid mobile-phone service based in Dallas. To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net . Last Updated: June 14, 2007 08:20 EDT

To: Paul Kern who wrote (82710)	6/14/2007 10:26:25 AM
From: Rarebird	Read Replies (1) \| Respond to of 110194

>>While inflation remains a risk, it doesn't appear to be taking a significant hold in the economy.<< One should pay attention to the market's reaction to the news and not the news itself. The news itself (i.e; PPI, retail sales report) said that inflation is a growing problem (it certainly is), but the bond market quickly changed its mind about that news and that's the signal you should pay attention to. The recovery rally in bonds -- which is no more than an intermission within a longer term bear market -- has clearly helped stocks short term. But given the overall trend (down), probability favors another day or two of consolidation at most, and then a continuation of the downtrend. At this point, stocks are slaves to the bond market.