- Private client services net revenues rose 21% to $157 million, from $130 million earned in the year ago quarter, primarily reflecting growth in fee-based revenues.
- Fee-based assets and TCF credit accounts increased 27% to $10.9 billion at the end of the quarter, when compared to $8.6 billion in the year ago period.
- Asset management revenues were a record $184 million, up substantially from the $23 million earned in the May 2006 quarter. The increase in asset management revenues when compared to the 2006 quarter, is primarily attributable to the growth and performance fees and proprietary hedge fund products, as well as improved investment returns on proprietary investments and growth and management fees on traditional and alternative assets under management.
- Sequentially, wealth management revenues increased 34% from the $255 million earned in the February 2007 quarter.

- Private client services net revenues increased 16% when compared to the February quarter on increased customer volumes and fee-based revenues.
- Asset management revenues increased 55% when compared to the February quarter and increased management and performance fees.
- Total assets under management on May 31 2007 were $59.8 billion, an increase of 25% when compared to $47.9 billion at May 31, 2006, and up 11% from $54.1 billion at February 28, 2007.
- Assets under management include $10.2 billion of alternative investments as of May 31, 2007, compared to $6.8 billion as of May 31, 2006, and $8.7 billion as of February 28, 2007.
- Total expenses were $1.96 billion, up 18% from the year ago quarter and up 19% from the February 2007 quarter. The increase in expenses is primarily related to the write-down for impairment of goodwill and specialist rights.

Operating expenses, excluding the write-down from impairment of goodwill and specialist rights, were $1.74 billion, up 5% from $1.67 billion in the May 2006 quarter.

Sequentially, operating expenses increased 6% from the February 2007 level of $1.65 billion, excluding the write-down.

Employee compensation and benefits were $1.23 billion, an increase of 1% from $1.22 billion in the second quarter of 2006.

Sequentially, employee compensation and benefits increased 2% from $1.2 billion in the February 2007 quarter. Compensation and net revenues were 49% when compared to 48.8% in the second quarter of 2006 and 48.5% in the February 2007 quarter.

Worldwide head count at May 2007 has increased to 15120 employees from 12519 on May 31, 2006, and 14409 on February 28, 2007.

- Head count growth experienced in February 2007 is attributable to the continued expansion of fixed income and asset management businesses, European and Asian hirings involve fixed income and equities, and increases in mortgage origination and servicing operations.
- Technology head count has also expanded in order to support the overall business growth.

Non-compensation expenses, excluding the write-down for impairment of goodwill and specialist rights, were $509 million, an increase of 14% when compared to $445 million in the May 2006 quarter.

The increase in non-compensation related costs when compared to the May 2006 quarter, is primarily related to increased transaction related costs, associated with higher business volumes as well as higher occupancy, communications and technology costs, associated with the increase in worldwide employee head count.

- The increase in floor brokerage, exchange of clearing fees, advertising and market development cost and professional fees is attributable to the increased transaction volume and business activities as well as higher recruiting related costs.
- Sequentially, non-compensation related expenses, excluding the write-down, increased 15% from $442 million in the February 2007 quarter, also primarily related to the increased transactional related costs and higher occupancy, communications and technology costs associated with the increase in the employee head count.

Cap plan related expenses decreased 25% to $32 million from $43 million in the May 2006 quarter, attributable to the decreased level of earnings.

Sequentially, Cap plan related expenses decreased 23% from $42 million in the February 2007 quarter.

- Pre-tax profit margins declined at 22%, when compared to 33.4% in the May 2006 quarter, and 33.7% at February 2007 quarter, primarily related to the write-down for impairment of goodwill and specialist rights.
- Annual life return on common equity was 11.6%, excluding the write-down for the impairment of goodwill and specialist rates, pre-tax profit margins would have been 30.7% and annual life return on average common equity would have been 15.6% and 17.5% for the trailing twelve month period.
- Tax rate was 34.7% which compared to 35.3% in the May 2006 quarter and 33.7% in the February 2007 quarter. The increase in the tax rate when compared to the February 2007 quarter reflects a $22 million increase in the tax provision, related to the re-measurement of the deferred tax assets associated with reductions and future state or local income tax rates, enacted during the quarter.
- Book value of May 31, 2007 was $92.50 per share with a $144.7 million shares outstanding.
- As of May 31, 2007 stock holders’ equity was $13.3 billion and total capital was approximately $75 billion.
- The company repurchased 2.2 million shares of common stock, at an aggregate cost of $329 million.

Year-to-Date Financial Highlights

Tax rate for the year to date is 34.1% versus 34.7% for the full fiscal year 2006.

Key questions from the second quarter earnings call conducted by Bear Stearns Cos., Inc. on June 14, 2007.

Guy Moszkowski (Merrill-Lynch): There was a significant increase in the non-personnel expenses relative to year ago and also the prior quarter. How much of that is an increase in some of your international infrastructure versus domestic and how quick do you expect to see revenue follow-through to that significant increase in the expense structure?

Sam Molinaro: The non-comparable costs are up about $60 million and more than half of that is transactional related expenses, some seasonal related cost around travel and entertaining, and there are a few one-time costs in there, that are related to some specific transactions. a good chunk of that will not be in the future run-rates, but the balance of a particularly cost around occupancy and communications and technology costs likely will stay with the company into the future because head count is up a lot, much of that head count growth is coming in London, some in Asia and in Tokyo and to some extent in Bear Sterns’ mortgage origination facilities. For the area that the company is investing in, it is seeing revenue growth that is coming along with it.

Guy Moszkowski (Merrill-Lynch): Did you take any significant valuation write-down to your sub-prime mortgage residuals and if so was that a major portion of the decline in mortgage revenues or was it just sluggishness in origination and secondary trading?