Fiscal 2007 Highlights

- The company reported $1.52 earnings per share, compared with $14.27 for fiscal 2006.
- Net income was $233 million compared with $2.1 billion earned in fiscal year ended November 30, 2006.
- Net revenues were $5.9 billion, compared with $9.2 billion in the prior fiscal year.
- The after-tax return on common stockholders’ equity was 1.8%.

- Capital Markets net revenues were $3.9 billion, a decrease of 46% from the $7.3 billion reported in 2006.
- Institutional Equities net revenues were up 10% to $2.2 billion from $2 billion in fiscal 2006. International sales and trading, risk arbitrage and principal strategies all delivered record results.

- Fixed Income net revenues were $685 million, down from $4.2 billion in 2006. Results for 2007 were heavily influenced by the severe market conditions across the fixed income sector. More broadly, the re-pricing of credit also led to lower net revenue levels due to illiquidity in the markets as trading activity levels deteriorated across the spectrum of fixed income products.

- Investment Banking reported net revenues of $1.1 billion, down 8% from $1.2 billion in the prior fiscal year. Increases in equity underwriting and higher transaction volumes in advisory areas were more than offset by lower fixed income underwriting net revenues and merchant banking results.

- Net revenues in Global Clearing Services were a record $1.2 billion, up 11% from $1.1 billion in fiscal 2006. Net interest revenues increased due to higher average customer margin debt and average customer short balances.
- Average customer margin debt balances were $90.3 billion compared with $68.4 billion in the fiscal year ended November 30, 2006.
- Customer short balances averaged $95.6 billion, up from the average of $82.6 billion for the 2006 fiscal year.

- Wealth Management net revenues were $830 million, a decrease of 3% compared with $858 million in fiscal 2006.
- Net revenues from Private Client Services rose 15% to $602 million from $522 million for fiscal 2006. Higher performance and management fees due to strong performance and higher levels of fee-based assets drove record results.

- Asset Management reported net revenues of $228 million, down 32% from $336 million in the prior year. The decline resulted from write-offs associated with receivables from and investments in the hedge funds, and lower management fees related to proprietary hedge fund products.
- Assets under management decreased due to a transfer of assets to a newly formed minority-owned affiliated asset manager and reductions in alternative assets under management. As of November 30, 2007 assets under management decreased to $44.6 billion from $52.5 billion as of November 30, 2006.

- Compensation as a percentage of net revenues was 57.6% as compared with 47.1% for the 2006 fiscal year.
- Non-compensation expenses were $2.3 billion, 34% higher than the $1.7 billion reported in 2006. Expenses rose due to higher occupancy expenses, professional fees, and communications and technology costs associated with increased headcount as well as a write-down of intangible assets, representing goodwill and specialist rights of Bear Wagner Specialists and severance charges included in other expenses.
- The pre-tax margin was 3.2% versus 34.1% in fiscal year 2006.

Key questions from the fourth quarter earnings call conducted by The Bear Stearns Companies, Inc. on December 20, 2007.

Roger Freeman (Lehman Brothers): Could you comment on the contour of customer activity levels during the quarter, particularly compared sort of November to September and October?

Sam Molinaro: As we came into the quarter, conditions seem to be relatively improving and did not end that way. As we progressed through October/November, market conditions got significantly more difficult, and as a result, we saw a customer activity in fixed income declining significantly, and moving to a safer haven.

Roger Freeman (Lehman Brothers): Could you give an early read on what you are seeing in December?

Sam Molinaro: The activity levels that we saw in fixed income during the fourth quarter were more subdued in most of the fixed income markets - in credit and mortgages during the latter end of the quarter, and the more liquidity products, and rates and foreign currency. Customer volumes continue to be strong. As we move into the first quarter, conditions have been improving. The effect of the pulse and plan moves of central banks around the world to improve liquidity all have had a favorable impact, and activity levels have picked up, and conditions have been better than where we ended in November.

Roger Freeman (Lehman Brothers): Have you taken any actions to resize the business you think you need to take at this point pending additional slowdowns or is there still more to come in the first quarter?

Sam Molinaro: We have taken the actions that we need to take right now. We will continue to monitor the environment and, to the extent things change or become more difficult, we will take additional actions necessary. The key focus that we had has been to get our operating costs down. We needed to address the mortgage origination effort, which had been built up in a different environment, and in light of expected volumes that needed to be addressed; so we have done that.

Roger Freeman (Lehman Brothers): There were losses this quarter from marking structured debt on your balance sheet to market, even though your CDS spread wide. In the last quarter, you have talked about trying to locking those gains. Did the reversal have anything to do with hedging activities this quarter?

Sam Molinaro: No, it is that the gains were smaller. The gains were larger in the third quarter than they were in the fourth quarter.

Roger Freeman (Lehman Brothers): Was it just a reduction in the amount of gains?

Sam Molinaro: Yes.