Many investors expected a nasty quarter for investment bank Bear Stearns (NYSE:BSC), and that's exactly what they got. For the three months ended Aug. 31, Bear produced earnings per share of $1.16, 62% lower than the prior year, and significantly less than the $1.78 Wall Street analysts were expecting. Revenue slid 38% year over year, and annualized return on equity was a truly dismal 5.3%.

While Bear's big-name competitors Lehman Brothers (NYSE:LEH), Morgan Stanley (NYSE:MS), and, in particular, Goldman Sachs (NYSE:GS) were able to offset many of the potholes of the quarter through strengths in other parts of the business, Bear came up well short. Revenue at Bear's capital markets segment fell 36% year over year as revenue at its fixed-income sub-segment plummeted 88% on lower client volume and falling asset values. Investment banking, a notable strength for the other banks, also fell 9%. Though the firm had increased financial advisory and equity underwriting activity, this was more than offset by lower fixed-income revenue and markdowns for portfolio companies in its merchant banking group.

As expected, results from Bear's wealth management division were really gnarly. During the quarter, the division forgot that it was supposed to make money and ended up with negative $38 million in revenue. Within wealth management, private client services produced 15% revenue growth, but that was overshadowed by the negative $186 million in revenue contributed by the asset management division. During the quarter, Bear suffered a debacle when two of its hedge funds went belly-up. That led to the reversal of accrued performance fees, the writedown of hedge fund investments and receivables, and lower management fees -- all in all delivering a $200 million drop-kick to Bear's results.

The institutional equities group was one of the few bright spots in Bear's quarter; it increased revenue 53% from the prior year. The firm's global clearing services also logged some good results, upping revenue 30% from 2006 on the strength of higher client margin debt and short balances. And as bad as things were in asset management, total assets under management actually grew 15% year over year.

As of this writing, Bear Stearns' stock is up more than 1.3% for the day, so the poor quarter may not have been as bad as some had braced themselves to expect. Bear has been knocked down the most from the highs that the investment banks hit earlier in the year, and it's trading at a very notable discount to its major competitors. While the quarter's results emphasize why it has dropped so much, the post-quarter reaction may suggest that investors think the firm's major problems are behind it.

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