Investment bank Bear Stearns Cos. will take a US$1.2 billion writedown in the fourth quarter related to weakness in its credit portfolios, Chief Financial Officer Samuel Molinaro Jr. said yesterday.

Molinaro said the write-down will lead the company to post a loss during its fiscal fourth quarter, which ends November 30.

Molinaro, presenting at the Merrill Lynch Banking and Finance Conference in New York, said Bear Stearns' latest round of write-downs should "suffice" in accurately valuing products such as subprime mortgages and collateralized debt obligations.

The US$1.2 billion write-down is net of any hedging gains, Molinaro added.

In July, two Bear Stearns-managed hedge funds worth billions of dollars, and heavily invested in subprime mortgage securities, collapsed as defaults increased and the bank could not find takers to purchase the distressed securities.

That helped trigger the credit crisis that swept the markets this summer.

Bear Stearns has been "working hard" to reduce its exposure to the subprime mortgage and collateralised debt obligation markets, Molinaro said.

CDOs are complex financial instruments that combine slices of varying assets and debt.

Many CDOs are backed by subprime mortgages — loans given to customers with poor credit history. As those mortgages have increasingly defaulted, banks are being forced to write down the value of bonds and CDOs backed by the loans.

As of November 9, Bear Stearns had about US$884 million in exposure to CDOs remaining on its books, and negligible exposure to subprime mortgages, Molinaro said.

Bear Stearns took about US$850 million in writedowns during its fiscal third quarter, as banks took more than US$40 billion in total writedowns in quarter.

AP