Moody's could lower Bear

Moody's Investors Service said it placed the long-term ratings of the Bear Stearns Cos Inc. (long-term unsecured rating at A1) and its subsidiaries on review for downgrade. The Prime-1 short-term rating was affirmed.

According to Moody's, the action is in response to Bear's announcement that the firm expects to post a net loss in the fourth quarter resulting from $1.2 billion in net market-valuation losses on its exposures to subprime mortgage-related assets and collateralized debt obligations. The loss follows on the heels of weak third-quarter earnings.

"Bear's performance through the market inflection and dislocation has been more challenged than at some competitors and reflects not only tough markets, but certain risk and strategic decisions made by the firm," Moody's senior vice president Blaine Frantz said in a written statement.

This includes the decision to extend financing to one of its in-house structured products hedge funds, which increased Bear's on-balance sheet exposure to the problematic assets and ultimately contributed to the writedowns, the agency said.

Although Bear has improved its earnings diversification over the past five years, its level and scale of product and geographic diversification still lag that of peers and has not provided a sufficient buffer to offset writedowns in mortgages and leveraged lending, Moody's said.

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