Bear Stearns falls as financial-sector stocks rise

NEW YORK (Reuters) - Bear Stearns Cos BSC.N shares fell more than 3 percent on Tuesday on concerns that the investment bank faced bigger-than-expected write-downs and might find itself hampered by a business model based on risky mortgage securities.

Earlier on Tuesday, the stock had dropped as much as 11 percent to a five-year low after falling 11 percent on Monday on market rumors that Bear Stearns faced a cash crunch. Bear Stearns said on Monday its balance sheet, liquidity and capital remained strong.

The stock's downward path on Tuesday contrasted with wider market activity. Financial shares led U.S. stocks higher after the Federal Reserve said it would add up to $200 billion to credit markets as part of a coordinated effort with other central banks to prevent credit markets from seizing up.

Deutsche Bank cut its price target to $72 from $90 for Bear Stearns shares, which were down $1.86, or 3 percent, at $60.44 in afternoon New York Stock Exchange trade.

Deutsche also lowered its earnings estimates for fiscal 2008 and 2009, saying it thinks write-downs are likely to be worse than expected and fundamentals will weaken somewhat.

"Given Bear's higher exposure to the softening mortgage market and less diversification by product and region than peers, we believe Bear should trade at a discount to its 5-year average multiples," analyst Mike Mayo said in an investor note.

A Bear Stearns insider, who asked not to be identified, said on Tuesday there was no truth to market speculation that the fifth-largest U.S. investment bank faces a cash crunch.

A Bear Stearns official declined to comment.

Punk Ziegel & Co analyst Richard Bove said the primary concern was Bear being forced to build a new business model.

"Bear Stearns' key strength in the old cycle was capturing the revenue growth in the mortgage markets," Bove said in a note.

"The business is now unlikely to show any growth for five years," he said. "The profits are also likely to be squeezed out as the more esoteric securities are rejected by the markets."

Punk Ziegel cut its price target for Bear to $45 from $90. It also lowered its earnings estimates to $2.69 a share from $6.47 for fiscal 2008 and to $4.80 from $7.67 for fiscal 2009.

(Reporting by Lilla Zuill and Joseph Giannone; Editing by Lisa Von Ahn)