After Morgan Stanley, Bear Stearns reports first quarterly loss in 80 years; Who next?

21 December 2007

After Morgan Stanley, it's the turn of Bear Stearns. The investment bank reported its first quarterly loss ever in its eight-decade history on Thursday 20 December, another victim of the mortgage crisis that has swept markets across the US and Europe.

The turmoil has afflicted top Wall Street banks and small student-loan providers alike. Reported losses have topped $40 billion so far, but analysts say that figure could climb even higher.

Morgan Stanley, a larger rival of Bear Stearns, reported its own first-time multibillion-dollar loss on Wednesday, which forced it to sell a stake to a Chinese sovereign wealth fund.

For others, more pain is to come. Merrill Lynch, which has already reported losses, is expected to announce more next month. Goldman Sachs reported a modest profit on Tuesday, but its stock price is down on the fear that it could face pain next year too.

Bear Stearns said it lost about $854 million, or $6.90 a share, for the fourth quarter, compared with a profit of $563 million, or $4 a share, a year earlier. Analysts expected a loss of $1.82 a share. The bank also said it had written down $1.9 billion of its holdings in mortgages and mortgage-based securities, up from the $1.2 billion it had anticipated last month.

The news caps a disastrous year for the USA's largest underwriters of mortgage bonds. Beginning this summer with the housing slowdown, Bear Stearns is a prime example of how Wall Street's big bet on securities based on risky home loans went sour.