Bear Stearns to `Weather Storm,' Won't Need Infusion (Update6)

By Yalman Onaran

Oct. 4 (Bloomberg) -- Bear Stearns Cos., the securities firm hit hardest by the collapse of the subprime mortgage market, said it will ``weather the storm'' and isn't looking for a cash infusion from an outside investor.

``Things are getting better'' since the Federal Reserve lowered its benchmark interest rate on Sept. 18, Bear Stearns President Alan Schwartz said in a presentation to investors today. ``Liquidity has improved,'' said Schwartz, who was promoted in August when the company's stock fell to the lowest in two years.

Bear Stearns will make managing risks a priority over growth and is avoiding ``big directional'' bets after reporting its largest quarterly earnings decline in a decade, Schwartz said. The firm helped trigger declines in the credit markets when two of its hedge funds lost $1.6 billion of clients' money.

``I'm confident that Bear Stearns will weather the storm and come out a stronger, more diversified and a greater organization,'' Chief Executive Officer James Cayne said at the conference. ``We're not looking for an equity infusion.''

Cayne said he would consider a potential partner only if the deal ``brings along geographic, strategic value to us.''

Bear Stearns fell 67 cents, or 0.5 percent, to $127.61 at 4 p.m. in New York Stock Exchange composite trading.

The stock's 22 percent decline this year is the worst on Wall Street, where it ranks fifth among U.S. securities firms by market value behind New York-based Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. The firm said last month that third-quarter earnings tumbled 61 percent, to $171 million.

Job Cuts

Bear Stearns, the second-biggest underwriter of U.S. mortgage-backed securities, said yesterday it was cutting 310 jobs from units that originate mortgages.

Securities firms have been eliminating mortgage jobs after record U.S. foreclosures sapped demand for bonds backed by home loans. The companies, which package home loans into bonds and sell them to investors, bought mortgage businesses in recent years to assure a steady supply and are now stuck with too much capacity.

``We're seeing liquidity flow better in the market,'' Schwartz, 57, said. ``We're seeing more activity levels coming back at a slow pace. But we're in the early stages of seeing how this plays out,'' said Schwartz, who became sole president after former Co-President Warren Spector was ousted on Aug. 5.

Spector's Ouster

The Bear Stearns hedge-fund collapse led to the ouster of Spector, 49, who was viewed by analysts as the most likely successor to the 73-year-old Cayne.

``The clear message that I received was that Bear Stearns believes itself to be in a solid position,'' said Richard Bove, an analyst at Punk Ziegel & Co. ``However, the markets the company faces may take time to recover,'' said Bove, who has a ``market perform'' on the shares.

The U.S. commercial paper market expanded for the first time in eight weeks, the Fed said today, in a sign that the worst of the short-term credit rout may be over.

Short-term debt maturing in 270 days or less rose $4.5 billion in the period ended yesterday to a seasonally adjusted $1.86 trillion, ending the biggest slump in at least seven years. Asset-backed commercial paper fell $6.1 billion.

Jeffrey Lane, who was hired in June from Lehman Brothers to fix the troubled asset-management unit that ran the hedge funds, said he planned to keep all three components of the business: hedge funds, private equity and funds that bet on stock gains.

Bear Stearns still intends to expand its asset-management business, with the U.S. its top priority and the U.K. second, Lane, 65, said.

He said Bear Stearns is about to complete the acquisition of a currency-management company in London, which oversees about $250 million, without identifying it. He also said he's looking at a fund-of-funds business in London as a potential acquisition.

Last Updated: October 4, 2007 16:10 EDT