Seoul, Jun 13 2006 (Korea Newswire)--
Korea Ratings Corporation(“KR”) has today assigned a rating
of ‘AAA’ to unsecured foreign currency-denominated
bonds(“Kimchi Bond”) to be issued in Korea in June 2006 by
The Bear Stearns Companies Inc.(“the company”). The rating
reflects as follows:
The company is a holding company of a large U.S.-based
investment bank founded in 1923, consisting of The Bear
Stearns Companies Inc. and its subsidiaries(collectively,
“Bear Stearns”). Bear Stearns has a stable operating base in
the U.S. capital markets, underpinned by 83-year business
experience and strong credibility. Its three main businesses
are capital markets, global clearing services and wealth
management. With such a diversified income base, Bear
Stearns maintains a stable income-generating capacity based
on its broad client base and market-making experience
accumulated over its long history of business, and excellent
risk management system. Especially, Bear Stearns holds a
leading market share in structured finance, such as
mortgage-backed securities(MBS) and asset-backed securities
(ABS), and prime brokerage business. Given these, KR
believes that its business stability is exceptionally
strong.
It is usual that investment banks take risks to generate
revenues due to the nature of business when doing securities
trading and investment activities in the capital markets.
Thus, it is essential for them to measure risks associated
with proprietary trading and thoroughly manage and control
risks. With a relatively conservative proprietary trading
appetite, Bear Stearns has executed systematic internal
control for rigorous control and management of market risk
from changes in interest rates, foreign currency exchange
rates and equity market volatility. Therefore, its risk
management capabilities are exceptionally strong. Although
Bear Stearns’ large market share in prime brokerage shows a
high portion of transactions with hedge funds with
relatively aggressive risk appetite, Bear Stearns makes
continuous efforts to mitigate credit risk through prudent
collateral management including strict measurement if
collateral value and real-time monitoring. Yet, as recently
intensified competition in the investment banking industry
results in pressures to cut commissions and margin on
financial instruments, Bear Stearns is likely to modestly
expand risk tolerance to offset a possible profitability
decline. In KR’s view, continued tight risk control and
management is necessary, depending on changes in investment
strategy in the coming years.
Although investment banks have large volume of shareholder’s
equity, they show markedly high leverage since they finance
their investment activities by raising funds based on their
creditworthiness. Thus, funding stability impacts the
creditworthiness of an investment bank significantly. Bear
Stearns sustains relatively low net adjusted leverage
compared to its peers thanks to its prudent financial
strategy and stable income-generating ability. Given that,
KR believes that its capital adequacy is good. Although Bear
Stearns is highly dependent on short-term debt, especially
RP, its debt composition and maturity structure are
relatively stable. Given its good asset liquidity,
collateral capacity using assets on hand, and credit
facilities, Bear Stearns’ funding stability is expected to
remain excellent. Yet, financial support from the U.S.
government is unlikely if Bear Stearns comes under financial
stress.
The credit rating herein has been assigned by KR in
accordance with KR’s established policies and procedures.
Fitch Ratings provided assistance to KR in the rating
process through the provision of non-public information on
the issuer, with the prior written consent of the issuer,
and via an exchange of views on the issuer. However, KR
retained complete control over the rating decision and full
editorial control over related public commentaries and the
research report. The non-public information on the issuer
provided by Fitch to KR was obtained by Fitch from the
issuer and other sources which Fitch believes to be
reliable. Fitch does not audit or verify the truth or
accuracy of any such information.
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