Bear Stearns profits rise on merger fees and debt

By Tim McLaughlin
NEW YORK (Reuters) - Bear Stearns Cos. (BSC.N: Quote, Profile , Research) said on Thursday quarterly net income soared 38 percent, 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. Shares rose nearly 3 percent after the investment bank recorded its fifth straight year of record profit.
Net income was $563 million, or $4 a diluted share, for the fourth quarter ended November 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 Reuters Estimates.
Net revenue rose to $2.41 billion over the year-earlier period. Compensation expenses fell 2.6 percentage points to 43.6 percent of net revenue.
Prudential Equity Group analyst Michael Mayo said the lower than usual compensation expense may have helped earnings by as much as 33 cents per share. That was partly offset by a higher tax rate, driven by increased profits.
Investment banking net revenue climbed 58 percent to $364 million on higher underwriting and merger and acquisition transaction volumes.
Bear Stearns Chief Financial Officer Sam Molinaro said the company's M&A backlog was at a record level at the end of the quarter.
On a conference call, analysts expressed concern about exposure to the subprime mortgage market, which involves loaning money to people with spotty credit histories.