DBRS Confirms The Bear Stearns Companies Inc. at A (high)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of The Bear Stearns Companies Inc. (“BSC” or the “Company”) and related entities as indicated above. All trends remain Stable.

The ratings are supported by DBRS’s view that BSC continues to make progress towards its strategy for a balanced business mix (through fixed income, global clearing business, and institutional equity sales and trading), which provides a base of stability to BSC’s earnings. BSC demonstrates ongoing depth in its fixed income franchise, including selectively investing in higher margin niches, and BSC’s ability to manage expenses relative to revenue growth.

During the past year, BSC demonstrated depth of its fixed income franchise as growth in high yield, interest rate, currency, and credit derivatives due to customer volume helped to more than offset declines in mortgage-backed securities revenues, which DBRS believes is one of BSC’s competitive advantages.

Fiscal 2005 was also a pivotal year for the European businesses with respect to generating revenue and pre-tax operating income; the result of BSC leveraging its U.S. strengths in fixed income, institutional equity sales and trading, equity derivatives, global clearing, and right-sizing certain businesses. Although DBRS believes BSC is better positioned today than in prior periods to capture the expected growth in Europe, the degree of success in the long term remains to be seen, given the strength of existing competitors in these markets, including other global investment banks and regional players.

DBRS believes long-term ratings are limited by BSC’s lower degree of diversification and lower operating scale, especially in overseas businesses, relative to its industry peers. BSC’s low level of geographic diversification relative to some of its peers constrains the ratings, although the differential should improve over time as revenue and profit contribution from BSC’s European businesses increase.

Another challenge facing BSC is structural changes that could impact profitability. Similar to its peers, litigation risk remains a concern. The outcome of class action suits is difficult to predict, but DBRS continues to believe settlement costs will not be of a magnitude that will impact ratings.

The Bear Stearns Companies Inc. is the parent company of Bear Stearns & Co. Inc., an institutional investment banking and securities trading firm with strong positions in certain fixed income markets, a solid institutional equity distribution franchise, and established clearing businesses.

Note:
Max Recovery Canada Company Short-Term Promissory Notes are guaranteed by The Bear Stearns Companies Inc.