Bear Stearns, Portfolios, and Waldo

Posted on March 20, 2008


Where’s Waldo?

Courtesy of the Bear Stearns 10-K for the year ending November 30, 2007:
Some basic math indicates that 33.4% of Bear Stearns’ portfolio was held in Mortgages, mortgage- and asset-backed securities. Add the Derivatives line item and you come to 47.5% of their portfolio is relatively risky assets. So how does this compare to a few of the other bulge bracket investment banks?

Hard to say in some ways with the numerous write-downs recently – $8 billion by Merrill Lynch, $9.4 by Morgan Stanley, $17.4 billion by Citigroup. But, some digging reveals how Bear Stearns is certainly outside of all of these firms regarding their risk exposure.

According to some recent 10Ks/Annual Reports:

Goldman Sachs – 11.9% of their portfolio is held in Mortgage-related. Add Derivatives, and 35% is in these two security types.

Merrill Lynch – 11.9% of their portfolio is held in Mortgage-related (no, that’s not a typo – it’s also 11.9%….). Add Derivatives, you get 43% in these two securities.

Lehman Brothers – 28.4% of their portfolio is held in Mortgage-related. Add Derivatives, and you get 42.7% of their portfolio.
This is a fairly cursory analysis, but looking at the most recent and pending results of the firms above, perhaps there’s a linkage in there somewhere? There are many-a-bankers asking themselves what sort of business strategy that Bear Stearns was undertaking, and certainly comparing results might yield some cause and effect in retrospect.
Or maybe Bear Stearns just missed the memo….