Lehman Brothers and Bear Stearns Cos, two of Wall Street's top investment banks, on Wednesday said that strong bond business drove quarterly profits higher, while stock trading and underwriting showed signs of picking up.
Lehman Brothers Holdings Inc. said its fourth-quarter earnings more than doubled. Profit was driven by bond trading, which accounts for half of its revenue, and a pickup in equities businesses, though mergers and acquisitions advisory declined.
Bear Stearns profit rose by 51 percent and surpassed estimates. Revenue was driven by strong underwriting of equities and high-yield bonds, as well as another solid quarter for bond trading, the firm said.
"They both beat estimates to the upside," said Wayne Bopp, an analyst at Fifth Third Investment Advisors in Cincinnati. "It seems that concerns that higher interest rates would hurt the bond business weren't as bad as people thought."
Lehman reported fourth-quarter net income of $481 million, or $1.71 per diluted share, compared with $187 million, or 69 cents per diluted share, a year ago.
Wall Street analysts, on average, had expected the firm to report net income of $1.57 a share, as tallied by Reuters Research.
Bear Stearns reported fourth-quarter net income of $288.3 million, or $2.19 a share, compared with $190.5 million, or $1.36 per share, a year ago. Analysts had expected net income of $1.81 a share, Reuters Research said.
Lehman beats estimates
Lehman's net revenue rose by 49 percent, to $2.3 billion, though down from the previous quarter. The low interest rate environment helped boost Lehman's fixed-income trading business, which accounted for 49 percent of revenue.
Revenue from fixed income trading was $1.12 billion, up from $733 million during the year-earlier quarter.
Revenue from equity underwriting and trading rose from last year, though declined from the third quarter. Equity underwriting revenue was $110 million, compared to $55 million last year, while equities trading revenue rose to $425 million from $213 million in the fourth quarter of 2002.
In a release, the firm said better market conditions helped drive its convertible securities and equity derivatives businesses.
Revenue from mergers and acquisitions advisory declined to $92 million from $138 million last year.
Lehman's revenue from client services, which includes management of high net worth clients and asset management, rose to $273 million from $193 million. The firm acquired money manager Neuberger Berman last summer.
Lehman shares were off slightly in early Wednesday trading, down 40 cents at $74.16.
Bear Stearns reported fourth-quarter net income of $288.3 million, or $2.19 a share, compared with $190.5 million, or $1.36 per share, a year ago.
"It was a very good quarter. They beat my estimate handily and they didn't do it with fixed-income trading revenues," said Jeffery Harte, an analyst with Sandler O'Neill. Investment banking and equity trading revenues impressed him the most, he said.
A low interest rate environment helped Bear Stearns remain among the top underwriters of debt, much of it in a mix of residential mortgage debt, asset-backed debt, emerging markets debt and corporate debt -- both high grade and high yield.
Total net revenue rose 36 percent, to $1.5 billion.
Revenue from the fixed-income unit rose 40 percent to $648.9 million.
Investment banking revenue jumped 168 percent, to $250.3 million, helped by the firm's IPO underwriting team and a solid stream of fees from the sale of new junk, or high-yield, bonds.
Bear Stearns shares were up $1.87 at $76.37 in early Wednesday trading. Bear's stock has risen just over 25 percent since the beginning of the year.