DBRS Changes Trend on Issuer & Senior Debt Rating for The Bear Stearns Companies Inc. to Positive

DBRS has today changed the trend on all long-term ratings of The Bear Stearns Companies Inc. (Bear or the Company) and related entities to Positive from Stable, including the Company’s issuer & senior debt rating of A (high). At the same time, DBRS confirmed Bear’s issuer & senior debt rating and added first-time ratings for the Company’s subordinated debt, preferred stock and trust preferred securities. The Company’s short-term ratings were confirmed at R-1 (middle) with a Stable trend. The positive rating action follows a detailed review of Bear’s operating performance and credit fundamentals.

The positive trend change reflects the Company’s success in broadening its franchise, expanding its international businesses and strengthening its earnings power, while maintaining its strong financial profile and its conservative risk management. The Company’s sustained revenue growth, with earnings more than doubling since 2002, attests to its ongoing success in generating strong financial results from its franchise. Delivering consistently low volatility in trading results, Bear’s conservative risk management is a key factor underpinning the Company’s ratings in DBRS’s view. Continued success in the expansion and enhancement of the Company’s franchise and financial performance is likely to lead to further positive ratings momentum.

In the United States and internationally, Bear continues to strengthen its leading vertically integrated mortgage platform that includes origination, securitization and servicing activities across a wide range of mortgage products. Bear has also significantly enhanced its credit products businesses in the United States and globally, as well as expanded its global interest rate and foreign exchange businesses. With subprime market disruptions and slower mortgage activity, the benefits of this broader fixed income base have been evident recently, as fixed income continues to generate strong revenue growth.

From its strong positions in cash equities and securities clearing, the Company is also successfully building out its solid equities franchise with an increasingly global presence and strength in sales, research and execution. Among the top three providers of prime brokerage services to hedge funds and other institutions, the Company is also benefiting from the strong growth of this investor segment. By focusing on key industries and customer segments and by leveraging its position in fixed income, Bear is also achieving success in its investment banking businesses. DBRS notes that the Company has successfully leveraged its franchise strengths to expand internationally, generating strong, profitable growth in its European and Asian operations in recent years.

Besides the strength of the Company’s franchise, the ratings are also underpinned by the Company’s strong, resilient earnings power and diverse business mix. High margins and sustained profitability growth are driven by the Company’s persistent success in achieving productivity gains, improved efficiency and controlling costs across its businesses. Flexible expenses, especially compensation, help the Company to align its expenses with its revenues, sustain high margins and deliver double-digit returns, even in down markets. The Company’s strong financial profile is also supported by sound liquidity management and capital resources that are commensurate with the Company’s conservative risk culture and its solid earnings track record.

Even with its enhanced franchise, Bear faces larger, well-established competitors and specialized players in many business lines, as it drives to sustain its expansion, especially in international markets, where it also faces strong local players. Delivering on the benefits from recent integration of its equities and clearing businesses into a single division is an important element in this drive. The Company’s franchise would also benefit from an increasing earnings contribution of wealth and asset management, as investment in these businesses matures. As Bear continues to expand across businesses and geographically, DBRS sees the Company facing the challenge of preserving its unique culture, its conservative risk management and internal controls across a larger, more complex organization.

The Bear Stearns Companies Inc. is a financial services company whose core businesses include institutional securities, clearing, investment banking, asset management and private client services. Headquartered in New York, New York, the Company reported $395 billion in assets as of February 2007 and net income of $2.1 billion in 2006.

Note:
All figures are in U.S. dollars unless otherwise noted.