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Bear Stearns Profits Driven By M&A, Underwriting

Bear Stearns said quarterly net income soared 38%, helped by gains from fees for merger advice and underwriting debt.

A Wall Street powerhouse in packaging home loans into mortgage-backed bonds, Bear Stearns said it turned in its best quarter ever, easily beating Wall Street expectations.

Net income was $563 million, or $4.00 a diluted share, for the fourth quarter ended Nov. 30, compared with $407 million, or $2.90 a diluted share, in the year-earlier quarter. The average
estimate was $3.36 a share, according to Thomson Financial.

Net revenue rose to $2.41 billion over the year-earlier period.

Investment banking net revenue climbed 58% to $364 million on higher underwriting and merger and acquisition transaction volumes, the company said. Credit derivatives, distressed debt and leveraged finance pushed up fixed income net revenue 25% to $1.1 billion.

"Evidence continues to mount that (Bear Stearns') fixed income trading business is meaningfully diversified beyond the domestic mortgage-backed security markets," Sandler O'Neill Partners analyst Jeff Harte said in a research note. He has a "buy" rating on the stock.

Bear Stearns' results also got a boost from hedge fund activity, which helped increase asset management net revenue by 66% to $112 million in the quarter.

On Tuesday, Goldman Sachs kicked off the earnings season for Wall Street's investment banks with quarterly earnings that nearly doubled to $3.15 billion. Goldman's profits in 2006 were more than the previous two years combined.

Bear Stearns shares are up 38 percent this year, beating the 24 percent gain on the AMEX Securities Broker Dealer Index.

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