Two more beleaguered banks – Bear Stearns and HSBC – took bold steps yesterday to sweep out additional billions in junk securities soiling their books, and got investor applause for the first time in weeks.
Bear Stearns said it would write down an additional $1.2 billion in value on the mortgage-related securities it holds, pushing the investment bank into the loss column for its third-quarter earnings.
It earlier wrote down $850 million in some of its shaky paper.
Meanwhile, Britain’s HSBC said it also would write down an additional $3.4 billion from its junk mortgage securities portfolios – its third this year – but the move won’t cause a quarterly loss as it did at Bear Stearns because of gains in other areas.
Investors liked the housecleaning, sending shares of Bear Stearns surging by more than 7 percent before they settled at $103.27, up $2.40, or 2.4 percent. Its shares are down 35 percent this year.
In London, HSBC shares jumped nearly 3 percent to 866 pence ($17.80), up 23.5 pence. Its shares are down 7 percent this year.
Credit rating agency Fitch Ratings panned the effort, cutting Bear Stearns’ short-term credit rating to “F1” from the highest “F1+” rating.
Separately, Massachusetts regulators accused Bear Stearns of failing to properly oversee traders at two in-house hedge funds that collapsed earlier this year over bad bets on subprime mortgage securities.
The state wants yet undetermined fines.
Some investors said they’re confident about buying Bear Stearns shares again.
A fund manager at Legg Mason said in filings that the firm had raised its stakes in Bear Stearns and Goldman Sachs in the third quarter despite their stock wipeouts from the mortgage meltdown.
The Legg Mason fund bought 3.6 million shares of Bear Stearns in the period, boosting its holdings to 3.98 million shares for a 3.4 percent stake. It also added 1.5 million shares of Goldman Sachs for a total stake of 1.97 million shares, or 0.5 percent.
Some analysts are concerned that the write-downs will continue into the fourth quarter.
“Fundamentals point toward write-downs being worse than those listed today,” said analyst Meredith Whitney at CIBC World Markets.
“Every day credit gets worse and the value of securities gets worse.”
Bear Stearns CFO Sam Molinaro Jr. believes the worst write-offs are over, adding that the latest round of charges should “suffice” in accurately valuing the investments.
Lehman Brothers analyst Roger Freeman said that having minimal exposure on the bank’s books would make it easier to contain any future write-downs.
“We believe investors may take some comfort that Bear Stearns has aggressively reduced its remaining exposure to this at-risk asset class to just $832 million,” Freeman wrote in a research note.
Goldman Sachs doesn’t expect to take any additional write-downs in its fiscal fourth quarter, said CEO Lloyd Blankfein.
It already posted a write-down of $2.4 billion in the third quarter.
Wall Street banks have collectively taken more than $70 billion in write-downs in the third quarter and early fourth quarter.