Lehman Brothers Holdings Inc., the nation’s No. 4 investment bank, on Thursday said equity trading and investment management fees drove its fiscal fourth-quarter profit past Wall Street expectations.
Lehman, the largest U.S. underwriter of mortgage-backed bonds, relied on a strong performance from its equities business to sidestep losses stemming from the credit market collapse.
“Despite what continues to be a difficult operating environment, the Firm’s results for the quarter highlight our ability to perform across market cycles and deliver value to our shareholders,” Chairman and Chief Executive Richard Fuld said in a statement.
For the three months ended Nov. 30, profit after paying preferred dividends was $870 million, or $1.54 per share, compared to $987 million, or $1.72 per share, a year earlier.
Revenue fell 3 percent to $4.39 billion from $4.53 billion a year earlier. Writedowns from mortgage-backed securities and real-estate holdings reduced revenue by $830 million.
Analysts polled by Thomson Financial projected a profit of $1.42 per share on revenue of $4.26 billion, according to analysts polled by Thomson Financial.
“Lehman, while not likely the best among the brokers ... should rank among the better performers this quarter,” Deutsche Bank analyst Mike Mayo said in a note to clients. “At first glance, there were no unusual surprises during a period that could have caused them.”
While fixed-income trading revenue declined 60 percent to $860 million in the quarter, Lehman’s equity trading revenue more than doubled to $1.9 billion. Investment banking revenue fell 3 percent to $831 million, but fees from asset management rose 30 percent to $832 million.
Fuld said the company was able to use risk management, including hedges, to guard against bigger losses from the credit markets. That raises some expectations that rivals Goldman Sachs Group Inc., Bear Stearns Cos. and Morgan Stanley might be able to do the same when they report fourth-quarter results next week.
Morgan Stanley has already warned Wall Street that it expects about $3.7 billion worth of writedowns during the quarter, while Bear Stearns expects $1.2 billion. Goldman Sachs has used the market turmoil to its advantage, and does not expect any writedowns for the period.
Wall Street’s biggest losses have come from plummeting values of financial instruments known as collateralized debt obligations, which pool together different slices of asset-backed securities.
Compensation and benefits at Lehman rose to $9.49 billion in fiscal 2007, up from $8.67 billion a year earlier. On Tuesday, the company said in a regulatory filing that Fuld received about $35 million in stock-based compensation for the year. Compensation at the major investment banks is closely watched, particularly for its impact on the New York economy.