Investor Day March 29, 2007

Prime Brokerage

Michael Minikes
Treasurer of The Bear Stearns Companies Inc.
Co-President of Bear, Stearns Securities Corp.
Prime Brokerage is a Key Business for Bear Stearns
‰ Unwavering commitment for over 25 years

‰ Global Clearing segment revenues of $1.1 billion propelled by prime brokerage

activity

‰ Business built on strong operations, integrated securities lending and effective risk
and credit controls

‰ We clear Equities and Fixed Income, Domestic and International

‰ We also service Broker-Dealers and Investment Advisors, in addition to Hedge

Funds

‰ Our unique structure with BSSC, Custodial Trust Company, and BSIL provides
special opportunities and benefits to clients

‰ We have an integrated approach, with Global Clearing, Equities and Derivatives

working closely with Fixed Income. Easy access to senior management

‰ Prime Brokerage is the “Portal” for “Delivering the Firm” to hedge fund clients

2
Prime Brokerage is a Core Component of the Global
Clearing Segment Profitability
Scale attributes position business for high margins
GCS Revenue and Pre-Tax Income

1,200
$1,077
$1,029
1,000
$894

$776 $465 43%

800 $753 $472 46%
$350 39%
$223 30% $218 28%
($M)

600

400

200

0
2002 2003 2004 2005 2006
3
Continued Growth Following Record Results in 2006
‰ Global Clearing revenues of $276 million in 1Q07 a 5% gain
versus 1Q06, following record revenue of $1.1 billion in 2006

‰ Record balances at February 28

⎯ Client equity
⎯ Margin debt
⎯ Short accounts
⎯ Free credits and client money fund investments

‰ Continued investment in people and technology

4
 Hedge Fund Industry
Trends and Opportunities
 Hedge Funds Trends and Opportunities
Worldwide Hedge Fund Assets Number of Hedge Funds Worldwide

$1,600 8,000
$1,427 7,241
$1,400 7,000 6,667

Number of Hedge Funds (ex. FoFs)

$1,200 6,000 5,782
$1,105
5,065
Assets ($ In Billions)

$973
$1,000 5,000 4,598
$820
3,904
$800 4,000
$626
$600 $539 3,000

$400 2,000

$200 1,000

$- 0
2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006
Year Year

Source: HFR 2006-Q4 Industry Report 6

 Hedge Fund Strategies Have Diversified
1990 Q4 2006
Convertible Arbitrage Distressed Securities Convertible Arbitrage
Emerging Markets (Total) Short Selling
0.48% 2.40% 3.17%
0.36% 0.29%
Short Selling 0.12% Sector (Total)
Equity Hedge 5.28% 5.08% Distressed Securities
Sector (Total) 0.24% 4.40%
Equity Market Neutral Relative Value Arbitrage
Relative Value Arbitrage 1.68% 13.23% Emerging Markets (Total)
10.08%
Equity Non-Hedge 0.60% 4.39%
Merger Arbitrage 0.60% Regulation D 0.24%
Event Driven 3.84%
Merger Arbitrage 1.55%
Fixed Income (Total)
Market Timing 0.35%
3.24%

Equity Hedge
Macro 10.93%
Macro 10.90% 28.67%

FI: MBS 2.09%

FI: High Yield 0.87%

FI: Diversified 1.51%

FI: Convertible Bonds
0.09%
Equity Market Neutral
FI: Arbitrage 2.53%
Macro 2.90% Event-Driven
Equity Non-Hedge
Macro
71.07% 13.55%
4.15%

71.07%

Note: HFR 2006-Q4 Industry Report 7

Hedge Fund Strategies are Increasingly Complex
‰ Many hedge funds trade multiple products
⎯ Equities, fixed income, derivatives, foreign exchange and futures
⎯ Desire consolidated portfolio reporting, cross margining and
financing
⎯ Some prefer conducting “prime brokerage” in derivatives form

‰ Hedge fund managers are running long only strategies and

“relaxed long only” strategies (130/30)

‰ Private Equity funds and hedge funds are converging

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 Institutions Are Driving Hedge Fund Growth
Projected Institutional Hedge Fund Projected Global Institutional
Flows as % of Total HF Flows Hedge Fund Assets and Flow
70% $1,200

60%
1,000
50%
800
40%
600
30%
400
20%

10% 200

0% 0
2000 2002 2004 2006 2008 2010 2005 2006 2007 2008 2009 2010

Assets Flows
Source: “Institutional Demand for Hedge Funds 2”, Bank of New York, Casey, Quirk & Associates, 2006-10 9
 Big Hedge Fund Complexes Dominate Overall AUM
Concentration of Hedge Fund Assets
7,241 $1.4T
100%
$1.2T

75%

50% 84% of
Industry
AUM
25%

3% of Funds 240
0
Funds Assets

Source: HFR 2006-Q4 Industry Report and Absolute Return Billion Dollar Club Rankings as of 2006-Q4 10
Bear Stearns Prime Brokerage
 Our Corporate Entity Structure Designed to
Facilitate a Variety of Prime Broker Activities
The Bear Stearns Companies Inc.
Long-Term Debt Ratings
Equity: $12.1 billion Fitch: A+ JCR: AA
Long-Term Debt: $54.6 billion Moody’s: A1 DBRS: A (High)
S&P: A+ R&I: AA-

Bear, Stearns & Co. Inc. Bear, Stearns International Bear Stearns Bank PLC Custodial Trust Company
(Consolidated) Limited (BSIL) Equity: $379 billion
Subordinated Debt: $845 million
Equity: $3.7 billion Equity: $1.9 billion Long-Term Debt: $298 million Equity: $206 million
Subordinated Debt: $6.7 billion Subordinated Debt: $992 million Subordinated Debt: Fitch AA-
Long-Term/Short-Term Debt Ratings
Proprietary Activities Long-Term Debt: $179 million Moody’s: A1 / P-1
S&P: A+ / A-1

(guaranteed)

Bear, Stearns Securities Corp.

Equity: $1.1 billion
Subordinated Debt: $3.4 billion
Senior Unsecured Credit Ratings
S&P: AA-
Moody’s: Aa3
Fitch: A+
Custody & Clearing Client Assets

Note: All figures are as of November 30, 2006. Dotted lines indicate indirect subsidiaries of The Bear Stearns Companies Inc. 12
 BSC Prime Brokerage Client Base Large and
Diversified
Convertible Distressed
Arb Securities
Other
6% 3%
3% Event
Driven
Multi 3%
Fixed
Strategy
Income
23%
Arbitrage
11%

Global
Macro
Market 3%
Neutral
12%

Long/Short
36%

Note: As of February 28, 2007 13

BSC’s Hedge Fund Business has a Two-Pronged
Strategy
1. Focus Sales and Marketing on
Elephant Large, Profitable Accounts
Hunting 2. Allocate Resources to Land
the Elephants

1. Maximize Client
Relationship

Bear 2. Foster Cross-Selling

Opportunities
Hugs 3. Make Client a Customer of
the Whole Firm – Deliver the
Firm

14
 Prime Broker Client Mix Reflects this Strategy
‰ From Nov 2000 to Feb 2007…

Clients(1) have doubled

Assets have quadrupled

(1) Elephant clients with AUM > $500M at BSC. 15

How Prime Brokerage Makes Money
‰ Financing Client Activity
⎯ Margin Lending
⎯ Customer Short Balances
⎯ Free Credits and Money Funds

‰ Processing Securities Transactions

⎯ Commissions on Executions
⎯ Clearing Charge on Transactions Done Away

‰ Tightly Monitoring Risk

⎯ Primarily measured through Stress Testing and Value at Risk
(“VaR”)
⎯ Maintain an internally developed system (“RACS®”) designed to
monitor risk across multiple strategies and products
⎯ Manage business to zero loss tolerance

16
 Firm-wide Margin Balances are at Record Levels
$90 Driven by Prime Broker Activity $84.3

80
Margin Debt CAGR = 19.2%
70
$ in Billions

60

50

40

30 $35.0

20
Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07

Note: Monthly average margin debt balances 17

 Short Selling Balances at Record Levels
Driven by Prime Broker Activity

Gross Shorts CAGR = 13% $119

$120 “Bear Stearns’
Internalization CAGR = 21% stock loan
100 department is the
best on the
80 Street” –
$ in Billions

$65
Global Custodian 2007
60 PB Survey
$60

40 $42 ‰ Internalization =
$59 Billion

20 ‰ Greater spread
Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07
(1) (2)
Total Stock Borrows Short Market Value

Note: Corporate securities borrowed from Bank trust departments, Custodial Trust Company, other dealers, or sourced internally (shaded area)
(1) Includes stock borrows vs. letters of credit (LOCs).
(2) Includes customer short balances and GCS portion of Firm’s short balances. 18
 Interest Revenue Efficiency Has Been Maintained
Despite Competitive Environment
Increasing Firm-wide Balances $803
and Total GCS Revenues… $736

Total GCS Interest Revenue ($M)

$209
Firm-Wide Balances ($B)

$569 $184
$179
$459 $153
$417
$125
$108

2002 2003 2004 2005 2006 1Q07

Firm Balances GCS Interest Revenue

Note: Firm-wide Balances defined as margin debt balances + customer short balances + free credit balances, average for period. GCS Interest Revenue 19
for 1Q07 will be available upon filing of 1st qtr 10-Q.
 Interest Revenue Efficiency Has Been Maintained
Despite Competitive Environment
Interest Revenue Efficiency 127
119
(indexed to Nov 2002)
105

Total GCS Interest Revenue

100 100
Firm-Wide Balances

2002 2003 2004 2005 2006 1Q07

Firm Balances GCS Interest Revenue

Note: Interest Revenue Efficiency = Total GCS Interest Revenues / Total GCS Balances (debits + shorts + credits); indexed to 100 at Nov 2002 rate 20
Hedge Fund Complexes are Demanding More from
Investment Banks
Services and Products that are essential for growth…
‰ Products
⎯ Research and Trading Ideas
⎯ Deal Flow and Capital Commitment for
Hedge Funds consider the
Trades performance of the Entire Firm
⎯ Synthetic Prime Brokerage and CFDs when:
⎯ Cross-Margining and Global Netting ‰ Paying for “α” (Prime
⎯ Global Footprint - International Coverage, Broker Balances are often
Processing, and Reporting the currency)
⎯ Credit Intermediation
⎯ Enhanced Trading Capabilities
‰ Distributing Trading
⎯ Financing for Bank Debt, Private Equity and
Physical Assets (i.e. Power Plants, Real Revenues, Banking Deals,
Estate, and Airplanes) and Prime Brokerage
⎯ Lending of Long Positions Mandates
‰ Service and Coverage ‰ Ranking Prime Brokers for
⎯ Integrated Firm Pricing and Coverage
⎯ Consolidated Service
Global Custodian, II and
⎯ Ease Of Doing Business other Surveys
⎯ Capital Introduction – Especially to Pension
Funds and Consultants
⎯ Consolidated Firm-wide Reporting
21
Global Custodian Results Show Focus on Clients
‰ #3 Global Prime Brokerage in latest Global Custodian survey
‰ Seven of Eight Top Ratings and 50 Best in Class awards
‰ “Comments suggest what [clients] like especially is the commitment of
the firm to the business, its industrial scale and an unfussy style that
guarantees them access to senior management” – Global Custodian

Best in Class Table for Bear Stearns

Business
Client Securities
Service Area Operations Consulting Financing Reporting Capital Intro Technology Value
Service Lending
Services

Global Ì Ì Ì Ì Ì Ì Ì Ì
<$100M Ì Ì Ì Ì Ì Ì Ì Ì
$100M-$1B Ì Ì Ì Ì Ì
$1B+ Ì Ì Ì Ì Ì Ì Ì
Single Strategy Ì Ì Ì Ì Ì Ì Ì
Multi-Strategy Ì Ì Ì Ì Ì Ì
North America Ì
Europe Ì Ì Ì Ì Ì Ì Ì Ì
22
Bear Stearns’ Recent Investment in our Prime
Brokerage Franchise
‰ Merged GCS with Institutional Equities and Structured Equity Products, along
with tighter integration of Fixed Income, Futures, and FX Prime Brokerage
‰ Consolidated Senior Relationship Management Teams to Focus on Most Important
Clients
⎯ Prioritize service and response time based on client’s “Fee Pool”
⎯ Allocate deal-flow, research ideas and other a-generating products based on firm-wide
P&L
‰ Created Integrated Equity Finance Group
⎯ CALM, Securities Lending, Synthetic Prime Brokerage
⎯ Securities Lending upgraded Æ better focus on high potential clients and more price
discrimination
⎯ CTC Paws program has been expanded
‰ Focusing on European and Asian Expansion
⎯ Synthetic Prime Brokerage and DV1 Capabilities in Asia
⎯ Direct Market Access to exchanges throughout the world
⎯ Cross-Margining across product types
‰ Formed Pension, Endowment and Foundations Services Group
⎯ Deliver the Firm to Public and Private Retirement Funds, Foundations, and Endowments
23
Key Themes for 2007
‰ Continued client growth
⎯ α generation
⎯ Capital commitment

‰ Building synthetic/derivative offerings

‰ Building upon Bear Stearns’s expansion efforts in Europe

24
Final Thoughts
‰ Hedge fund growth is likely to continue due to globalization and
institutionalization of investor base

‰ The Bear Stearns Prime Brokerage Franchise is strong, stable, and

significant source of earnings growth

‰ Bear Stearns continues to invest in the franchise and recent

investments will make platform stronger and more competitive

‰ Bear Stearns enjoys relationships with the most significant hedge

funds in the world. Product and service improvements can be
immediately monetized.

‰ Risk management is a core competency of our prime brokerage

platform and we continue to make it a priority

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26
Certain statements contained in this discussion are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to risks and uncertainties, which could cause
actual results to differ materially from those forward-looking statements. Numerous
factors may affect our business, including but not limited to interest rates, market
conditions, transactions included in our backlog failing to close, general economic
conditions in the US or other geographic regions that may suffer economic
downturns. For a fuller discussion of these risks see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and “Risk Management”
in the Company’s Annual Report to Stockholders, which has been filed with the
Securities and Exchange Commission.

The information in this document is provided by Bear Stearns for informational

purposes only, and should be considered current only as of the date of its initial
publication, without regard to the date on which you may actually review the
information.
 Investor Day March 29, 2007

Prime Brokerage

Michael Minikes
Treasurer of The Bear Stearns Companies Inc.
Co-President of Bear, Stearns Securities Corp.