Bear Stearns , Wall Street's largest underwriter of mortgage-backed securities, said on Thursday first-quarter earnings rose 8%, despite a challenging environment in the subprime lending sector.
Bear Stearns said it earned $554 million, or $3.82 a share, for the three months ended February, up from $514 million, or $3.54 a share in the same quarter a year ago. Revenues rose 14% from the year-ago period to $2.5 billion.
Analysts surveyed by Thomson Financial predicted a profit of $3.80 a share on revenues of $2.49 billion.
Bear Stears said the recent meltdown in the subprime mortgage industry had a minor impact on its performance. It not only originates loans, but packages loans into securities and sells them to investors.
The New York-based company said that "residential mortgage-related revenue decreased from the prior year period, reflecting weakness in the U.S. residential mortgage-backed securities market."
However, it had little effect on its fixed-income business, where revenue rose 27% to $1.1 billion during the quarter. Revenue from equity sales and trading rose 3% to $513 million.
Revenue from investment banking grew 3% to $303 million, as strong stock underwriting and acquisition advisory business was offset somewhat by weakness in merchant banking. This has been one of the businesses the company has targeted for growth to take advantage of booming acquisition activity.
It said revenue from its capital markets segment rose 15% to $2 billion from $1.7 billion. It had a sharp increase in revenue from trading distressed debt, or debt of companies that have filed for or face the likelihood of bankruptcy. Trading in credit derivatives, which help investors protect themselves against swings in the value of debt, was also strong, Bear Stearns said.
"We are pleased with this excellent performance, revenues for the first quarter were up for every business segment," said Chairman and Chief Executive James E. Cayne in a statement. "Growing the company remains a core focus as we continue to invest in our domestic and international franchises with successful results."
Bear Stearns is the third of the four big Wall Street firms to report earnings for their fiscal first quarter. Goldman Sachs and Lehman Brothers already reported strong numbers, while Morgan Stanley is expected to report on March 22.
Lehman on Wednesday said "weakness" in the mortgage market stemmed revenue growth, but did not see subprime problems spreading to other parts of its business. Goldman said it has limited risks in mortgages.
Concern about rising mortgage delinquencies from borrowers with risky credit histories has sent a ripple-effect through the entire banking industry. New Century Financial, which had been a major provider of loans to people with risky credit, said it has lost support from its financial backers and is being delisted from the NYSE.
Bear Stearns, along with UBS Securities, was ordered by Massachusetts Secretary of State William F. Galvin earlier this week to turn over documents concerning stock recommendations on subprime lenders. Galvin said upgrades to some mortgage lenders came as New Century, and others, began to hemorrhage.
Scott Coren, an analyst with Bear Stearns, upgraded New Century's stock to 'peer perform,' or hold, from 'underperform,' or sell, on March 1. The rating change came after the mortgage lender said it was restating past results because of accounting errors.
Bear Stearns said on Wednesday its analysts' research was mischaracterized as being 'upbeat,' and said it would cooperate with the inquiry.