Write-downs mount in run-up to Christmas

Bear Stearns is the latest in a string of banks forced to reveal higher write-downs than expected.

The bank's total net inventory write-downs as at November 30 stood at $1.9 billion, down from the approximately $1.2 billion it had anticipated at the beginning of that month. The losses were the result of a continued repricing of credit risk and severe dislocation in the structured products market, said Bear Stearns in a statement. As a result of the write-downs, the bank has reported a fourth quarter loss of $1.371 billion, which, combined with a weak third quarter, has reduced the bank’s full-year pre-tax income to just $193 million. “We are obviously upset with our results,” commented Bear Stearns chairman and chief executive officer James Cayne on the figures, which he referred to as “unacceptable”. As a result, members of the bank's executive committee will have to forego their bonuses this year.

Following the announcements, Moody’s Investors Service downgraded the long-term ratings of the bank from A2 to A1, stating that the write-downs have overwhelmed the earnings power of Bear’s “otherwise strong, but less well-diversified franchise”. While the rating agency has indicated its outlook on the bank to now be stable, concentration of exposure and an elevated risk appetite have been flagged as areas of concern.

Bad news was also on the cards for French bank Crédit Agricole, which announced that higher provisioning requirements and write-downs would reduce its 2007 pre-tax earnings by €2.5 billion. The bank decided to tighten its “already strict” write-down policy by including an additional accounting write-down on its super-senior collateralised debt obligations, as well as taking into account the situation of ACA Financial Guaranty and the significant strengthening of general provisions on credit instrument counterparty risk. Calyon, the corporate and investment banking division of the group, will report losses for financial year 2007.

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