UPDATE 5-Bear Stearns has huge loss, cuts executive bonuses
(Adds Moody's ratings action, updates share price to close)
NEW YORK, Dec 20 (Reuters) - Bear Stearns Co Inc BSC.N posted a much bigger-than-expected quarterly loss on Thursday, capping a fiscal year when the fifth-largest U.S. investment bank took a beating on bad bets on risky subprime mortgages.
It was the first loss in the history of the company, which decided top executives would not receive bonuses. Bank of America analyst Michael Hecht said Bear's smaller bonus pool could lead to attrition and hinder a strong rebound.
Bear Stearns said it took a $1.9 billion write-down in the fourth quarter ended Nov. 30, reflecting the reduced value of subprime mortgage-related securities. That was bigger than the $1.2 billion the company estimated in early November.
The quarterly net loss of $854 million, or $6.90 a share, compared with a year-earlier profit of $563 million, or $4 a share.
The loss was nearly four times bigger than the $1.80 a share that analysts were expecting, according to Reuters Estimates.
Goldman Sachs analyst William Tanona said the good news was that Bear's subprime mortgages problems might be largely over, but there is doubt that the company is diversified enough to recover as quickly as rivals.
Bear Stearns' shares were down for much of the session, but rallied late in the day as the broader market rose, closing up 82 cents at $91.42 on the New York Stock Exchange. The stock has fallen nearly 44 percent this year, compared with a 16 percent decline for the Amex Securities Broker Dealer index .XBD.
Most of Bear Stearns' quarterly loss came from its position in collateralized debt obligations, which are underpinned by risky subprime mortgages. The company said it had unwound, or eliminated, those positions, but overall exposure to subprime mortgages was about $500 million at the end of November.
Chief Financial Officer Sam Molinaro described the results as "extremely disappointing." But he told analysts and investors on a conference call that senior management's relationship with Bear's board was "very solid and very good."
Lehman Brothers analyst Roger Freeman expressed concern in a research note that Bear's equity revenue was weak, in contrast to rivals, slipping 11 percent to $384 million.
The collapse of two Bear-run hedge funds last summer sidetracked the company's prime brokerage business, which caters to hedge funds. That may have resulted in market share losses to Goldman Sachs Group Inc (GS.N), for example, Freeman said.
MOLINARO SAYS PRIME BROKERAGE IS FINE
But Molinaro told Reuters in an interview that Bear's prime brokerage business remained "strong and vibrant" and that clients were not terminating their relationship with the company.
Some of the decline in account balances is the result of customers dialing back their leverage in shaky credit markets, he added.
Moody's Investors Service cut Bear Stearns' long-term credit rating one notch to "A2," the sixth-highest level, citing the investment banks' weak operational performance in 2007, a more challenging outlook for 2008 and the rating agency's view that Bear's appetite has increased.
Last year, Bear's top four executives received cash and restricted stock then valued at about $103 million. Chairman and Chief Executive Jimmy Cayne's total pay package was nearly $34 million.
Cayne has been the subject of unflattering articles about his time playing golf and bridge while the company's key fixed-income business stumbled amid the industry's subprime mortgage woes. He fired co-president Warren Spector and has shown no signal of relinquishing CEO duties to current President Alan Schwartz, as some outsiders have speculated. (Editing by Lisa Von Ahn/Andre Grenon)
