S&P: Market Overreacting to Bear Stearns Outlook

NEW YORK -- The market's response to a recent change in Bear Stearns' credit rating outlook by Standard & Poor's has been a "vast overreaction," an S&P analyst said Monday.

S&P lowered its outlook on Bear to negative from stable on Friday, indicating a rating downgrade is possible over the next few years. The move prompted Bear's stock price to plunge.

But Bear's stock price ended Monday's session more than 5 percent higher at $113.81.

"Not that much has changed at the company to warrant such a severe change in the pricing of their securities in our view," S&P analyst Scott Sprinzen said.

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Shares of Bear Stearns, known on Wall Street as a leader in the $7 trillion U.S. mortgage bond market, dropped 5.9 percent to $108.85 around midday on Friday, and the cost of protecting its debt with credit derivatives jumped nearly 40 percent.

"We still expect the company to be profitable in the current quarter and thereafter," S&P's Sprinzen said Monday. "Its liquidity is strong."

However, Goldman Sachs Group Monday lowered its third-quarter and fiscal-year earnings estimates for Bear, saying the investment bank faces "significant headwinds in multiple businesses."

Goldman, which also cut its 12-month price target to $135 from a prior level of $180, also cited a "market that feels unlikely to decelerate its assault on mortgages and credit."

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