Bear Stearns to take $1.2B writedown
CFO warns that embattled brokerage firm will take writedown and suffer loss in the current quarter.
NEW YORK (CNNMoney.com) -- Bear Stearns' chief financial officer said Wednesday that he expected the company to take a $1.2 billion writedown and post a loss in the current quarter to reflect the value of its subprime holdings.
Samuel Molinaro, Bear Stearns' CFO and chief operating officer, said the majority of the losses were related to its exposure to collateralized debt obligations, or pools of bonds that are sliced into so-called tranches carrying different levels of credit risk.
"We think we have the inventory marked down to levels that are prudently conservative," Molinaro said, speaking at the Merrill Lynch Banking and Financial Services Investors Conference in New York.
Molinaro warned that the $1.2 billion figure could change before the end of the quarter, but Wall Street cheered the news as Bear Stearns (Charts, Fortune 500) shares soared over 6 percent in pre-market trading on the news.
Molinaro also acknowledged during a question-and-answer period that the company would post a loss this quarter as a result of the writedown.
While Bear Stearns has not suffered the types of losses experienced by peers Citigroup (Charts, Fortune 500) and Merrill Lynch (Charts, Fortune 500), the firm has been hard hit by the ongoing credit crisis.
New York-based Bear Stearns took a $200 million loss following the meltdown of two its hedge funds heavily invested in subprime securities. The company also took a writedown totaling $700 million mortgage assets and private equity loan commitments.
Wednesday's announcement is the latest setback for the financial services sector. British banking giant HSBC said it was taking a $3.4 billion charge in the third quarter due to losses in its U.S. mortgage business.