Moody's downgrades Bear Stearns to A2; Outlook stable
Approximately $80 billion of debt securities affected
New York, December 20, 2007 -- Moody's Investors Service downgraded the long-term ratings
of The Bear Stearns Companies Inc. ("Bear") to A2 from
A1 and affirmed the Prime-1 rating on the company's short-term
debt. This concludes the rating review Moody's commenced
on November 14, 2007. The outlook on all of Bear's
ratings is now stable.
According to Moody's, the downgrade reflects Bear's
weak performance in 2007, Moody's view that risk appetite
has increased, as well as a more challenging core operating outlook
in 2008.
Moody's said that as a result of sizable write-downs on its
mortgage and CDO portfolios, Bear reported a fourth quarter pre-tax
loss of $1.4 billion, which, combined with a
weak third quarter, reduced full-year pre-tax income
to just $193 million.
"These write-downs overwhelmed the earnings power of Bear's
otherwise strong, but less well-diversified franchise,"
said Blaine Frantz, a Moody's Senior Vice President.
Although these losses occurred during a market inflection point,
their size, relative to Bear's earnings, also indicates
an increase in the firm's risk appetite.
Moody's believes that Bear is exposed to risks in its commercial
real estate portfolio. Moody's particularly noted Bear's
concentrated risk from its participation in the $26 billion Hilton
leveraged buyout transaction. This exposure is also large relative
to the firm's earnings capacity and capital position and is another
example of an elevated risk appetite at the firm.
Moody's considers Bear's remaining net exposure to further
write-downs in residential mortgages to be limited, although
market volatility will continue to require effective management of its
Alt-A mortgage portfolio. Additionally, reduced volumes
in the mortgage markets and broader continuing market dislocations make
the outlook for 2008 earnings challenging.
The rating action also reflects Moody's ongoing concern regarding
Bear's corporate governance, including board oversight of
management's strategic risk decisions and leadership succession planning.
Supporting the stable outlook on the firm's ratings, Bear
Stearns continues to have a strong and increasingly global franchise that
has historically produced solid and stable earnings, Moody's
said. Specifically, Bear possesses strong customer-flow
franchises in a number of fixed income businesses, has a solid and
well-performing secondary equities platform, and has a consistent
profit generator in its global clearing and prime brokerage operation.
These businesses should allow the firm to generate solid core earnings
in 2008 despite the likely contraction in its traditionally strong and
important mortgage franchise.
Bear's ratings also benefit from its ample capital position and
strong liquidity profile. Bear recently announced a partnership
agreement with CITIC Securities Co. Ltd. ("CITIC"),
a Chinese securities firm, which includes a $1 billion preferred
stock investment by CITIC in Bear, further bolstering the company's
capital position. The agreement is also a positive development
for Bear since it should enhance its ability to further improve its geographic
diversification.
The Bear Stearns Companies Inc. is an international investment
bank and financial services firm headquartered in New York, NY that
had 14,153 employees and reported $80.3 billion in
total long-term capital at November 30, 2007. Bear
generated net revenues of $5.9 billion for 2007.
The long-term ratings of The Bear Stearns Companies Inc.,
and its subsidiaries, were downgraded by one notch. Included
are the following major entities:
Downgrades:
..Issuer: Bear Stearns Bank plc
....Senior Unsecured Deposit Program,
Downgraded to A2 from A1
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from A1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A2 from A1
..Issuer: Bear Stearns Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to A3 from A2
..Issuer: Bear Stearns Capital Trust III
....Preferred Stock Preferred Stock,
Downgraded to A3 from A2
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A2
..Issuer: Bear Stearns Capital Trust IV
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A2
..Issuer: Bear Stearns Capital Trust V
....Preferred Stock Shelf, Downgraded
to (P)A3 from (P)A2
..Issuer: Bear Stearns Caribbean Asset Holdings,
Ltd.
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from A1
..Issuer: Bear Stearns Companies Inc. (The)
....Issuer Rating, Downgraded to A2
from A1
....Junior Subordinated Shelf, Downgraded
to (P)A3 from (P)A2
....Multiple Seniority Shelf, Downgraded
to a range of (P)Baa1 to (P)A2 from a range of (P)A3 to (P)A1
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A3
....Subordinate Regular Bond/Debenture,
Downgraded to A3 from A2
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to a range of (P)A2 to A2 from a range
of (P)A1 to A1
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from A1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of (P)A2 to A2 from a range of (P)A1 to A1
....Senior Unsecured Shelf, Downgraded
to (P)A2 from (P)A1
..Issuer: Bear Stearns Finance LLC
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A3
....Preferred Stock Shelf, Downgraded
to (P)Baa1 from (P)A3
..Issuer: Bear Stearns Global Asset Holdings,
Ltd.
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to a range of (P)A2 to A2 from a range
of (P)A1 to A1
....Senior Unsecured Medium-Term Note
Program, Downgraded to A2 from A1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of (P)A2 to A2 from a range of (P)A1 to A1
..Issuer: Bear, Stearns Securities Corporation
....Issuer Rating, Downgraded to A1
from Aa3
Outlook Actions:
..Issuer: Bear Stearns Bank plc
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Capital Trust I
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Capital Trust III
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Capital Trust IV
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Capital Trust V
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Companies Inc. (The)
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Finance LLC
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear Stearns Global Asset Holdings,
Ltd.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Bear, Stearns Securities Corporation
....Outlook, Changed To Stable From
Rating Under Review
New York
Blaine A. Frantz
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653