Bad news at Bear Stearns

Wall Street firm swings to its first quarterly loss on record, takes $1.9 billion writedown; pulls bonuses for execs.

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By David Ellis, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Bear Stearns swung to its first quarterly loss ever Thursday and said it was taking a $1.9 billion writedown due to bad bets made on risky home loans, becoming the latest Wall Street firm to deliver disappointing quarterly results.

The company posted a net loss of $854 million, or $6.90 a share, in the fourth quarter - a first in the firm's 84-year history.

In the same period last year, the company reported a profit of $563 million, or $4 a share.

Bear's top line took a big hit. The company reported negative revenue of $379 million for the quarter, versus $2.4 billion a year ago.

The results were far worse than forecast. Analysts had expected the company to report a loss of $1.79 a share, on revenue of $625 million, according to earnings tracker Thomson Financial.

"Our performance this quarter and for the full year is clearly disappointing and not acceptable to us," Bear Stearns Chief Financial Officer Sam Molinaro told analysts during a conference call following the results.

As a result of this quarter's numbers, Molinaro said that members of the company's executive committee will not receive any bonuses for the year, which includes himself as well as the company's Chairman and CEO James E. Cayne.

But Molinaro suggested that it any management changes at Bear Stearns were unlikely given the board's relationship with the company's executive committee. which he described as "very solid and very good."

Bear Stearns (BSC, Fortune 500) shares edged lower percent in afternoon trade.

Last month, Bear Stearns warned that it expected to take a $1.2 billion writedown. But the company said Thursday that the final figure was raised to 1.9 billion due to tough conditions in the credit markets.

"Bear Stearns' writedown of almost $2 billion on its mortgage portfolio is at best an example of shoddy risk management," said Octavio Marenzi, CEO of the independent financial research and consulting firm Celent.

Considered a leader in the business of packaging home loans into tradable securities, Bear Stearns said it trimmed its exposure by 5 percent to $43.6 billion during the quarter, Molinaro said. Just a small portion of that included troubled securities like collateralized debt obligations, or CDOs, and subprime mortgages.

The writedown in the company's fixed-income business dragged on its overarching capital markets division, which oversees many of its core businesses, including trading and investment banking. Bear Stearns said the division lost $956 million in the fourth quarter, versus a profit of $1.9 billion a year ago.

Offsetting those woes were improved results in other areas, including Bear's wealth management division. Revenue in this segment climbed 10 percent from a year ago, helped by higher client activity and a rise in fee-based assets.

Looking ahead, Molinaro said the firm would have plenty of cash in the coming year, helped by its $1 billion partnership with the Chinese investment bank Citic Securities Co. it announced in October, adding that he firm was confident it would return to profitability in 2008.

While Bear Stearns has not suffered as severely as some of its peers like Merrill Lynch (MER, Fortune 500), it has been hit hard by the ongoing credit crisis.

In the third quarter, the firm took a $200 million loss following the meltdown of two its hedge funds heavily invested in subprime securities and as a result now faces a lawsuit from Barclays Bank PLC, which alleged the investment bank misrepresented the health of one of its failed hedge funds.

Bear also took a $700 million writedown during the same period on mortgage assets and loans extended for private equity buyouts.

The credit crisis has also prompted the firm to pare down its payroll. So far, Bear Stearns has laid off about 900 workers and announced plans late last month to cut an additional 650 jobs.

Bear Stearns' results cap what has been a particularly difficult week for Wall Street firms. Morgan Stanley (MS, Fortune 500) reported its first quarterly loss in the firm's history Wednesday and took an additional $5.7 billion writedown, bringing its total fourth-quarter hit to $9.4 billion. Despite reporting better-than-expected profits Tuesday, Goldman Sachs (GS, Fortune 500) saw signs of strain in some of its key businesses from the previous quarter. To top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.