Bear Stearns confirmed it was the US securities dealer with proportionally the most damaging exposure to the troubled US mortgage market when it unveiled a third-quarter net profit of $171.3 million, a year-on-year drop of 61%.Its fixed-income net revenues were $118 million in the quarter ended August 31, 88% lower than for the same period in 2006. “A general repricing of risk in the market led to significant reductions in both mortgage- and credit-related revenues as volumes decreased while asset values declined,” Bear Stearns said in a statement.
The story was remarkably different at rival dealer Goldman Sachs, which posted record profits, in part due to an early bet that mortgage values would decline. Goldman Sachs’ net profit rose by of $2.85 billion, up 79% over the similar quarter last year.
“Significant losses on non-prime loans and securities were more than offset by gains on short mortgage positions,” Goldman Sachs said in a statement. Net revenues in the dealer’s fixed-income, currency and commodity unit rose 71% to $4.89 billion. But Goldman Sachs lost $1.71 billion on credit products related to non-investment-grade credit origination activities. This was mitigated to a loss of $1.48 billion, net of hedges.
Lehman Brothers earlier this week reported a 3% decline in net profits (Valuation reductions hit Lehman Brothers for $700m), while Morgan Stanley suffered a 7% fall in profits over the similar period.
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