Bear Stearns Reports Third Quarter Results; Record Earnings Per Share of $2.69; Net Income Rises 34% to $378 Million; Equity and Equity-Related Businesses Fuel Strong Growth

Business Wire, Sept 15, 2005

NEW YORK -- The Bear Stearns Companies Inc. (NYSE:BSC):

--Investment Banking Net Revenues Up 65%

--Institutional Equities Net Revenues Rose 43%

--Wealth Management Net Revenues Up 21%

--Global Clearing Services Net Revenues Increase 15%

The Bear Stearns Companies Inc. (NYSE:BSC) today reported record earnings per share (diluted) of $2.69 for the third quarter ended August 31, 2005, up 29% from $2.09 per share for the third quarter of 2004. Net income for the third quarter of 2005 was $378.3 million, up 34% from $283.3 million for the third quarter of 2004. Net revenues were $1.81 billion for the third quarter, up 18% from $1.53 billion for the third quarter of 2004. Annualized after-tax return on average common stockholders' equity for the third quarter 2005 was 16.9%, and for the trailing 12-month period ended August 31, 2005 was 16.8%.

"I am very pleased with the record results for the quarter," said James E. Cayne, chairman and chief executive officer. "Bear Stearns continues to perform well in every area, our fixed income division is more diversified, our banking effort broader, our client relationships stronger and our talent pool deeper than ever before. The balanced nature of our business mix remains a driver of our excellent results throughout shifting market cycles."

A brief discussion of the firm's business segments follows:

CAPITAL MARKETS

Net revenues for the Capital Markets segment were $1.4 billion for the quarter ended August 31, 2005, up 15% from $1.2 billion for the third quarter of 2004.

--Institutional Equities net revenues were $333.6 million for the third quarter of 2005, a 43% increase from $233.5 million for the comparable prior-year quarter. Risk arbitrage, equity derivatives and the domestic and international sales and trading areas all contributed significantly to this strong performance.

--Fixed Income net revenues were $739.2 million for the third quarter 2005, down 4% from $774.0 million reported for the quarter ended August 31, 2004. The interest rate businesses posted record results with year-over-year gains led by the foreign exchange area. Although down from peak levels, the credit and mortgage-related businesses have remained strong, reflecting market-share gains as well as the results of earlier investments made to broaden the franchise and diversify revenues.

--Investment Banking net revenues were $299.9 million for the quarter ended August 31, 2005, up 65% from $181.8 million for the year-ago third quarter. Underwriting, M&A and advisory fees were significantly higher, as market activity increased across a wide range of products including IPO and secondary equity issuance, municipal and high-grade underwriting. Merchant banking revenues increased to $93 million up from $3 million in the prior-year quarter due to principal gains and performance fees.

GLOBAL CLEARING SERVICES

Net revenues for Global Clearing Services were $258.0 million for the quarter ended August 31, 2005, up 15% from $225.1 million for the quarter ended August 31, 2004. Higher customer margin debt and customer short balances resulted in increased net interest revenues. Partially offsetting the increase in net interest revenues were lower commission revenues reflecting reduced prime brokerage trading volumes and rates. Average customer margin debt balances were $57.2 billion during the quarter ended August 31, 2005, up 23% from $46.6 billion in the comparable quarter of fiscal 2004. Customer short balances averaged $81.3 billion for the third quarter of 2005, compared with $75.6 billion for the third quarter of 2004.

WEALTH MANAGEMENT

Wealth Management net revenues for the quarter ended August 31, 2005 were $169.6 million, an increase of 21% from $139.8 million for the quarter ended August 31, 2004.

--Private Client Services net revenues were $113.9 million in the third quarter of 2005, up 10% from $103.5 million in the prior-year quarter. The expansion of the sales force, growth in fee-based assets and increased investor activity contributed to the rise in net revenues.

--Asset Management net revenues rose 53% to $55.7 million for the third quarter of 2005 from $36.3 million in the prior-year quarter, reflecting increased management fees and higher performance fees. Total assets under management were $37.1 billion on August 31, 2005, up 32% from $28.1 billion on August 31, 2004.

EXPENSES

--Compensation as a percentage of net revenues was 47.0% for the third quarter of 2005 versus 48.4% in the quarter ended August 31, 2004. Compensation as a percentage of net revenues for the nine months ended August 31, 2005 was 48.5%, and 47.8% for the full year ended November 30, 2004.

--Non-compensation expenses were $381.1 million for the quarter ended August 31, 2005, a rise of 10% from $347.8 million for the comparable prior-year period. The increase is primarily related to higher communications and technology costs, occupancy, and professional fees.

The third quarter 2005 pre-tax profit margin was 32.0% as compared with 28.9% for the third quarter of 2004.