Bear Stearns Takes $225M Charge on Specialist Unit Move

Bear Stearns Cos. slashed the value of its New York Stock Exchange specialist unit and will take a $225 million charge as the shift to automated trading eliminates the need for brokers on the floor of the Big Board.Bear Stearns also bought out Hunter Partners LLC, its minority partner in the Bear Wagner unit, to “give us more flexibility in managing the business in this changing environment,” the chief executive officer, James Cayne. said in a statement yesterday. Terms of the transaction weren’t disclosed.The NYSE’s new automated trading system has eliminated work for floor traders who now handle about 18% of the 1.6 billion shares traded daily on the Big Board, down from 86% at the start of 2006, according to the exchange’s Web site. Shares of LaBranche & Co., the biggest specialist firm, have declined 38% in the last year as increased electronic trading reduced demand for its services.“The earnings capacity of specialist firms has been hurt dramatically,” the chief financial officer of Bear Stearns, Sam Molinaro, said yesterday at an investor conference in New York. “Given the current environment, we concluded that we had no choice but to writeoff” a portion of Bear Stearns’s investment in the specialist firm.The non-cash charge will reduce earnings in the company’s fiscal second quarter, which ends May 31, Bear Stearns said. The firm and Hunter Partners bought Wagner Stott Mercator LLC for $625 million in 2001 and eventually renamed it Bear Wagner. Hunter Partners initially held a majority stake of 50.2%.In the first quarter, profit at Bear Stearns, the fifth-biggest American securities firm, rose 8% to $554 million as higher revenue from trading derivatives and debt of troubled companies overcame a slowing market for home loans.Shares of Bear Stearns fell $2.55, or 1.6%, to $153.85 at 4:14 p.m. yesterday in New York Stock Exchange composite trading. The stock has risen 14% over the last year, in line with the 12-member Amex Securities Broker/Dealer Index.Bear Wagner represents more than 350 publicly traded equities with a total market capitalization of more than $2.8 trillion, according to the statement. Bear Wagner will be included in Bear Stearns’s Global Equities Division.Earlier this month, the chief executive officer of NYSE Euronext, which operates the NYSE, John Thain, said that traders handle enough shares to merit the floor’s current size. This year the NYSE shuttered one of five trading rooms, shrinking that space for the first time in more than a century.“The exchange already is almost all electronic, but a lot of the electronic trading is the specialists and the brokers on the floor,” Mr. Thain said during a conference at Baruch College in New York. “They will continue to add value, which means there will continue to be a floor.”

Bear Stearns Takes $225M Charge on Specialist Unit Move

Bear Stearns Takes $225M Charge on Specialist Unit Move

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