Investment banking firm Bear Stearns Cos. (NYSE:BSC) announced results this morning that can only be considered bullish.
Third quarter net income rose 90% year over year to $313 million, keeping alive a string of consecutive gains in quarterly income that stretches back to mid-2001. Bear Stearn's bond trading business as well as its investment banking and securities arms all strengthened, driving the stock of the sixth-largest U.S. broker (and many peers) higher.
The company earned $2.30 per share in the quarter, backhanding the $1.65 per share consensus estimate put out by analysts, and guaranteeing that the $7.23 estimate for the year needs to go higher. At $74 per share, the stock trades at about 10 times the existing estimate.
The company's third quarter net revenue rose 29% to $1.49 billion, led by a 76% surge (to $720 million) in fixed-income net revenue, which includes mortgage-backed securities, high-yield and interest-rate products. Perhaps more surprisingly, Bear Stearn's investment banking arm grew revenue 83% to nearly $300 million, aided in part by the secondary offering of Aeropostale (NYSE:ARO).
The gain comes despite the fact that volume in the initial public offering (IPO) market remains near record lows, although the quality of offerings has increased.
Fellow investment houses Morgan Stanley (NYSE:MWD), Merrill Lynch (NYSE:MER) and financial giant Citigroup (NYSE:C) also gained ground on Bear Stearns' good news. Several large financial services companies announce quarterly results this coming week, including Morgan Stanley on Sept. 23.
Financial companies are often batted about by the whims of market volatility, rate adversity, stock-trading volume and investment-banking booms and busts. The cyclical nature of all such factors makes giant swings in earnings possible over relatively short time periods. Investors in the industry need to be able to ride the storms out. It appears Bear Stearns has put the worst of the recent bear market's fury behind it.
