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Bulls at Bear, prop trading elsewhere

Investment Banking

Bear Stearns is the investment-banking model to strive for. That, at least, is the opinion of David Hendler, banks and brokerage analyst at CreditSights: "Bear Stearns may be the new business model for success in the changed brokerage playing field."

The US investment bank is a big player in all the customer businesses which matter. It's a big underwriter of asset-backed securities, strong in credit and interest-rate instruments, and was the number one bank for the quarter in municipal-bond underwriting, helped in large part by underwriting $4.7 billion in tobacco-fund asset-backed deals for the states of New Jersey and California. It's doing a good job selling equity derivatives and trading convertibles, and even has done well in M&A, announcing a surge in completed M&A revenues.

But its core franchise driver is probably mortgage-backed securities, in which Bear is second only to UBS Warburg in the US. It's had another good quarter, driven by high volumes of mortgage refinancings, but also by a large appetite for the product from the banking industry. "There is an incredible bid for MBS product from the banking sector as it is one of the only ways banks can take advantage of the steep yield curve environment," says Hendler.

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