JUN. 15 12:51 P.M. ET Bear Stearns Cos., the nation's seventh-largest brokerage, reported Thursday that strong equities trading and fixed-income revenue lifted second-quarter profit by 83 percent to beat Wall Street expectations by a wide margin.

Net income applicable to common shares grew to $558.2 million, or $3.72 per share, from $309.7 million, or $2.09 per share, in the same quarter last year. Revenue surged 33 percent to a record $2.5 billion from $1.87 billion in the year-ago period.

Wall Street had projected second-quarter earnings of $3.12 per share on $2.11 billion of revenue, according to analysts polled by Thomson Financial.

"The first half of 2006 has proven to be our best ever," said Chairman and Chief Executive James E. Cayne in a statement. "Our success in increasing the depth and breadth of our business both domestically and internationally has fueled our enthusiasm and appetite for further growth."
Bear Stearns follows Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. in posting near-record profits during the quarter, yet still below the blockbuster returns seen during the first quarter. Shares of securities firms have slumped this week on concern a market downturn might eat into profits, especially as the industry heads into the historically sluggish summer period.

However, record fixed income revenue -- the New York-based investment house's biggest businesses -- came in sharply higher than Wall Street expected. As a result, investors snapped up shares of Bear Stearns -- sending it higher by $5.25, or 4.2 percent, to $127.65 in midday trading on the New York Stock Exchange.

Almost half of Bear Stearns' revenue comes from its fixed-income operations, which saw revenue jump 45 percent to a record $1.2 billion. The company is the biggest U.S. underwriter of mortgage backed bonds, and reported robust trading of derivatives and foreign exchange during the quarter.

As housing markets have cooled this year, Cayne has shifted the company's focus to offset the pressure on mortgage lending. The investment house has expanded into securities backed by loans for commercial property, and derivatives linked to the risk of a default on mortgage bonds.

The move has Wall Street buzzing, with analysts like Wachovia Securities' Douglas Sipkin stating "I don't think anybody could have predicted this" during a conference call with Bear Stearns executives.

"This was a very high level, a breakout from the last several quarters, and I can't predict where it will be going forward," Chief Financial Officer Sam Molinaro said. "Its kind of silly for me to predict, but business conditions are good."

Another record was set with Bear Stearns' investment banking business, which increased revenue 20 percent to $278.3 million. While not as steeped in investment banking as its Wall Street rivals, Bear Stearns said merger and acquisition fees increased significantly after advising on deals such as The Walt Disney Co.'s $7.4 acquisition of Pixar Animation Studios Inc.

Capital markets net revenues rose 40 percent from a year ago to $2 billion, and is up 19.5 percent from the first quarter. Institutional equities trading produced revenue of $554 million, up 42 percent from last year.

Revenue from global clearing services, which aids institutional investors and other brokerages in stock transactions, rose 5 percent to $290 million in the second quarter. Bear Stearns is one of the nation's top brokers to hedge funds.

One chink in the results was Bear Stearns' wealth management operations, where revenue fell 3 percent to $151 million during the period. The once high-flying business segment suffered from a decline in fees charged to hedge funds for securities transactions.

On Tuesday, Bear Stearns rival Goldman Sachs reported its second-quarter profit more than doubled to $2.31 billion, and Lehman reported a 48 percent increase in profit to almost $1 billion on Monday.

____________________________________________________________

The Associated Press/NEW YORK
By JOE BEL BRUNO
AP Business Writer

Copyright 2006, by The Associated Press. All rights reserved.

Copyright 2000-2006 by The McGraw-Hill Companies Inc. All rights reserved.