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The fall out from the meltdown of the sub prime lending housing market probably has a very far way to go. Bear Stearns has recently had a very bad time of it. It’s not often that a big Wall Street firm has to hold a conference call in an effort to prove its creditworthiness, but these are not ordinary times.

The following is from Forbes online magazine:

“Bear Stearns (nyse: BSC - news - people ), facing possible investor lawsuits over the implosion of two of its mortgage-laden hedge funds, severe pressure on revenues because of its exposure to the home and leveraged loan markets, and a possible bond-rating downgrade, says it’s weathering the storm.

Investors have lingering doubts. Bear Stearns stock plunged 6% in late-Friday trading after top executives said on a conference call that the credit markets were the worst they’ve been in years and that July was a very challenging month for the firm. “I want to assure you that we are taking the situation seriously,” said James Cayne, Bear Stearns chairman.

Bear Stearns was profitable in June and July, boosted by record results in its securities-clearing operations and solid earnings in equities and overseas. But its fixed-income business, which includes mortgages and mortgage-related securities, suffered from the general shock that is gripping the bond markets. Return on equity for the company, a key measure of profitability, will be at the low end of the historic range, which is 12% to 20%, in the current quarter.

Fixed income had a poor July, and August’s first few days have been difficult as well, said Sam Molinaro, Bear Stearns’ chief financial officer, who has worked in the markets for more than 20 years. He compared the last six weeks to the market shocks of the 1987 stock market collapse, the Asian and Russian debt crises of the 1990s and the bursting of the dot-com bubble. “These times are pretty significant,” he said on the conference call Friday. “It’s as bad as I’ve ever seen.”

Markets rise and fall, but it’s rare for a big Wall Street firm to have to come out and defend its soundness. Bear Stearns’ conference call was arranged after Standard & Poor’s said it changed its outlook for the firm’s bonds to “negative” from “stable,” but affirmed the senior debt rating at A-plus. S&P cited concerns about Bear Stearns’ exposure to the mortgage and leveraged loan businesses, two huge and growing sectors for the firm.

In additions to losses from its position in the mortgage market, Bear Stearns is on the hook for commitments it made to help finance several large buyouts, which now are hung up in a loan market that has no lenders. Molinaro tried to assure analysts on the call that the firm had adequate capital to withstand the beating it is taking from the bond market upheaval and the near lack of liquidity in the loan markets. All that is forcing Bear Stearns and other banks and brokerage houses to swallow commitments to deals they normally would finance only temporarily, before selling bonds off to long-term investors.

Bear Stearns has more than $11 billion in cash and $11.5 billion in short-term loans outstanding (but that is down $23 billion from January as the firm reduces its reliance on commercial paper.) It has more than $76 billion in capital. Friday’s developments at Bear Stearns seemed to put pressure on other financial services companies’ shares. Lehman Brothers (nyse: LEH - news - people ), another huge player in the mortgage and mortgage securities business, saw its stock fall almost 7% in afternoon trading Friday.

Shares of hedge fund manager Fortress Investment Group (nyse: FIG - news - people ) were down more than 6%. The financials led the entire stock market lower. Molinaro told investors he believed the company’s exposures to mortgages and leveraged loans were manageable, well-hedged and prudently funded. Bear Stearns’ prime brokerage division, which facilitates trades and trade financing for hedge funds, has little or no exposure to structured mortgage and loan products.

Redemptions in the firm’s asset management division–which oversaw the troubled hedge funds–will likely continue “but has not been a tidal wave by any stretch.” Molinaro acknowledged that the difficult bond market would likely choke off some investment banking activity down the road. Sounds as if Bear will be glad to put the third quarter, which ends on the last day of August, behind it. “We just weathered a pretty significant storm,” Molinaro said. “The environment was not easy in June. July was very very bad. Hopefully August will be better.”

My own take on all of this is that when a leading Wall Street investment bank feels that it must call a press conference to assure investors that all will be OK it is time to really start worrying. I fully expect a lot more bad news to hit Bear Stearns and the investment banking and mortgage company sectors over the next few weeks. There is a lot of additional downside potential before this financial debacle plays out.

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