This summary is based on the second quarter fiscal 2007 earnings call conducted by Bear Stearns Cos., Inc. (BSC: chart) on June 14, 2007.
Head of Investor Relations and Corporate Communications: Elizabeth Ventura
Chief Financial Officer: Sam Molinaro
Key Investors Issues
- EPS were $2.52 a share compared to $3.72 a share last year.
- Net income was $362 million, down from the year-ago $539 million.
- Net revenue, which excludes interest expense, was nearly flat at $2.5 billion.
Second Quarter Highlights
Earnings per share were $2.52 per share, a decrease of 32% when compared to $3.72 per share in the May 2006 quarter.
Included in the results was the charge of $227 million or 88 cents per share, related to the write-off of intangible assets representing goodwill and specialist rights, associated with NewYork Stock Exchange Specialist activities.
- Earnings per share, excluding this charge, were $3.40 per share, a decrease of 9% when compared to the second quarter of 2006.
- Sequentially, earnings of $2.52 per share declined 34%, from $3.82 per share earned in the first quarter of fiscal 2007.
- Excluding the write-down from the impairment of goodwill and specialist rights, earnings per share declined 11% when compared to the first quarter of fiscal 2007.
Net revenues were $2.51 billion, a 1% increase from $2.5 billion earned in the year ago quarter.
The increase in net revenues reflects the generally favorable market environment experienced, which was characterized by rising global equity markets, tight corporate credit spreads and liquidity, which resulted in increases and under-writing and M&A volumes.
- Equity under-writing volumes increased and leveraged finance and high yield new issue volumes rose, and increased sponsor-led M&A activity.
- Equity trading volumes increased in both cash and derivative products when measured against the 2006 period, reflecting the favorable equity market environment. As a result, institutional equity revenues increased and global clearing achieved record revenues. Partially offsetting these results was the decline of fixed income revenues attributable to weaker US mortgage and global interest rate markets.
- In the fixed income markets, US residential mortgage activities remained challenging, as difficulties in the sub-prime markets served to reduce market activity. In addition, lack of volatility in global interest rate markets served to suppress customer volumes and opportunities.
- Credit markets remained favorable, as spreads remain tight and leverage finance volumes increased significantly.
- The results achieved continued to demonstrate success in expanding and diversifying franchise, both domestically and internationally.
- In capital markets segment, equities and investment banking revenues remained strong, reflecting increases customer volumes and favorable market conditions.
- Equity revenues in the May 2006 quarter, included gains recognized from the IPO of the New York Stock Exchange, excluding these gains, institutional equity revenues increased as higher net revenues were achieved, and international equities, equity derivatives and risk arbitrage.
Investment banking revenues rose on higher equity and high yield under-writing revenues.
- The company achieved record net revenues in global clearance services, as customer balances increased and transaction volumes rose.
- Increased asset levels and investment performance drove wealth management results, and the company achieved record private client and asset management revenues.
- Asset management revenues increased significantly, and increased management and performance phase.
- While fixed income revenues declined when compared to the prior year period, reflecting weaker mortgage product revenues, credit product revenues rose as leverage finance’s structure of trading increased.
Internationally, fixed income and equity activities continued to show positive momentum and margin expansion.
- International revenues reached $505 million, a 57% increase over the second quarter of 2006, and represented approximately 20% of consolidated net revenues.
- Investments, made to broaden international product offerings and distribution capabilities, have continued to yield positive results.
- International head count increased over seventeen hundred people, as the company added across equity of fixed income franchises.
- The record revenues achieved, reflect these investments and were driven by strong results and credit products, equity derivatives, foreign exchange and international equity sales and trading.
- Net income was $362 million, a decrease of 33% from $539 million earned in the May 2006 quarter.
- Excluding the write-down from impairment of intangible assets, associated with the company’s specialist activities, net income was $486 million, a decrease of 10% from $539 million earned in the May 2006 quarter.
- Sequentially net income declined 35% from $554 million earned in the February 2007 quarter, or excluding the write-down, declined 12%.
Capital markets net revenues, which includes institutional equities, fixed income and investment banking, were $1.86 billion, a decrease of 10% from $2.06 billion in the May 2006 quarter, and a 5% decline from $1.97 billion earned in the February 2007 quarter.
- Institutional equity net revenues decreased 3% to $543 million, when compared to $560 million earned in the May 2006 quarter. The decline in institutional equity revenues primarily reflects gains recognized in the May 2006 quarter associated with the IPO of the New York Stock Exchange. In addition, specialist activity declined when compared to the 2006 quarter.
- Energy and commodity revenues also declined, reflecting gains recognized in the 2006 period, from the monetization of certain power assets. Largely offsetting these decreases were exceptionally strong results from the company’s core equities franchise, which increased approximately 35%, including record net revenues and structured equity products and risk arbitrage.
- The increase in structured equity product net revenues is attributable to higher results from European and Asian activities, reflecting increased customer volumes and favorable market conditions.
- Risk arbitrage revenues increased to record levels on sharply higher announced M&A volumes.
- Sequentially, institutional equity net revenues increased 6% to $543 million, from $513 million in the February 2007 quarter.
- The sequential increase is primarily related to higher net revenues and structured equity products as well as improved domestic and international cash equity sales associated with increased customer volumes.
- In addition, risk arbitrage net revenues rose and increased M&A volumes.
