Given the strong earnings reported by Lehman Brothers
No such luck.
All three of the bulge bracket investment banks that have reported second-quarter earnings so far have felt the sting of the downturn in the residential mortgage market, particularly on the subprime end. Like the other banks, Bear makes money from the mortgage market through activities such as trading, principal investing, and securitizations. The turmoil in the market likely hurt the volume of business that Bear was given by its customers, as well as some proprietary investments that the firm made.
Bear, like Goldman Sachs
The wealth management division provided some silver lining for Bear's quarter. Revenue for the segment was up 123% year over year, thanks to great results from the firm's asset management operations. Asset management revenue increased from $23 million to $184 million as assets under management (AUM) increased to $60 billion. Though Bear's total AUM pales in comparison to, say, Goldman's, the firm attributed strength in the segment to higher performance fees and investment performance, an area that some of Goldman's funds have been struggling with lately.
For the quarter, Bear's percent of revenue spent on compensation crept up slightly, and non-compensation expenses were up significantly. Even without a $227 million charge the firm took for its specialist trading subsidiary, Bear's pretax margin declined to 30.7% for the quarter from 33.4% in the prior year.
Wall Street estimates prior to this earnings release showed Bear's earnings sliding further sequentially next quarter. While the absence of any special charges will help, the strength of the business environment, and in particular the recovery of the residential mortgage market, will likely have the final say in what Bear can show us three months from now.
Further financial Foolishness:
- Before the Call: Kicking the Bear Out of Bear Stearns
- Dueling Fools: Goldman Sachs
- The I-Banks Ain't Done Yet: Lehman's Earnings
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...