Bear Stearns third quarter beats expectations

/ Source: The Associated Press

Bear Stearns Cos. on Thursday reported its third-quarter profit climbed 16 percent as the Wall Street investment bank relied on strong trading results to shake off a sluggish period for mergers and acquisitions.

The New York-based financial services firm became the third on Wall Street to report better-than-expected earnings this week. The robust results come despite a significant drop in investment banking activity during the quarter, and a summer slowdown in stock trading.

Chairman and Chief Executive James Cayne has tried to build up Bear Stearns’ stock trading and investment banking business to offset a slowdown in the mortgage industry. The firm is one of the nation’s most prolific underwriters of mortgage-backed bonds, which helped power profit during an upswing in the housing market.

“Bear Stearns produced excellent results for the third quarter and record results for the first nine months of 2006,” Cayne said in a statement. “We are seizing opportunities in the marketplace to both expand our existing core businesses and enter new areas where we can profitably develop our market presence.”

Profit applicable to common shareholders for the period ended Aug. 31 climbed to $432.2 million, or $3.02 a share, from $372.4 million, or $2.69 per share, a year earlier.

Although Bear Stearns turned in a solid performance during a traditionally muted quarter, the firm still couldn’t keep step with the blistering pace of the first half. Profit tumbled 19 percent from the second quarter, while revenue declined 15 percent.

Strong results from sales and trading and its mortgage-related businesses sent revenue 17 percent higher to $2.1 billion from $1.8 billion a year earlier. As expected, investment banking — which this year became a driver of Bear Stearns overall business — fell 23 percent from the year-ago period.

Results exceeded Wall Street projections for a profit of $2.87 a share on $2.05 billion of revenue, according to analysts polled by Thomson Financial.

The report follows similar results posted by rivals Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. Analysts had lingering concerns throughout the quarter that Wall Street’s biggest firms would have a tough time making their numbers, and would not be able to compensate for a summer trading slump and signs the economy is moderating.

Instead, Bear Stearns proved quite the opposite as revenue from its equity trading and sales business surged 31 percent to $436 million. Sales and trading of debt securities increased 19 percent to $878 million despite declining industry volumes in the mortgage industry.

Both of these businesses helped lift Bear Stearns’ capital markets business 13 percent to $1.55 billion from $1.37 billion a year earlier. The business also includes investment banking, where revenue fell to $232 million from $300 million.

Bear Stearns wealth management division, one area Cayne has identified as a key growth business, reported revenue increased 36 percent to $231 million. The firm’s global clearing services business posted $269 million of revenue, up 4 percent from the year-ago period.

Shares of Bear Stearns, which are up about 18 percent this year, rose slightly in early trading.