GO
Loading...

Enter multiple symbols separated by commas

Lehman Profits Slightly Above Estimates

Lehman Brothers said fiscal fourth-quarter profit rose 22% with
record revenue from virtually every business line, but investors expecting even better results kept Lehman shares to small gains in morning trading.

Lehman, the fourth-largest U.S. securities firm by market value, said net income rose to $1 billion, or $1.72 a share, for the three months ended Nov. 30, from $823 million, or $1.38, in the year-ago period. Net revenue rose 23%, to $4.5 billion.

The results exceeded the average analyst earnings forecast of $1.68 a share, according to Thomson Financial, but it did so by the smallest margin in six quarters.

"The majority of the upside was driven by higher fixed-income trading results and M&A revenue, offset slightly by higher compensation and non-comp expenses," Citigroup brokerage analyst Prashant Bhatia said in a research note.

Wall Street firms in the quarter rebounded from a sluggish summer to cap off a record year amid robust M&A and leveraged buyout activity, stock and debt offerings and trading. For the year, Lehman reported record profit of $4 billion with all-time high revenue and a return on equity of 22.3%.

Lehman's trading revenue rose 28% to $3 billion, fueled by its second-best quarter ever in fixed income markets. Results were driven by customer activity and an increase in asset-based securities, muted by weaker interest rate and currency businesses.

It was a strong performance, surprising investors who still regard Lehman as a bond trading house with a heavy reliance on mortgage markets.

The equities business also had its second-best quarter, rising 8% to $900 million on greater market activity and growth in prime brokerage services to hedge funds. These results include private equity gains, which aren't disclosed.

Lehman's investment banking revenue rose 5% to a record $858 million, driven by strong debt and stock underwriting activity. Fees from merger and acquisitions, however, fell 7% even as the industry wraps up a record year in M&A activity.

Money management and wealth management revenue surged 26% to a record $640 million, as managed assets grew to $225 billion from $207 billion in the third quarter. Lehman's book value, watched closely by investors, rose 5% to $33.87 a share.

Analysts said Lehman's costs were higher then expected, with compensation and benefits comprising 49% of revenue. Salaries and bonuses, reflecting the tremendous growth in revenue, rose 24% to $2.24 billion.

Other expenses rose 15%, reflecting the company's expansion into new businesses and markets. Headcount worldwide surged 13% to 25,936 employees over the past year.

These results, though impressive, paled when compared with Goldman Sachs which on Tuesday reported a 93% jump in quarterly profit,
record annual earnings and an ROE of 34%. Bear Stearns
which also reported results this morning, said its profit rose 38%.

Yet investors are growing more cautious as they look ahead, concerned that Wall Street earnings may have peaked.

"We understand 2006 has been such a great year for M&A, a great deal year," said Scott Armiger, a portfolio manager at Christiana Bank & Trust in Delaware. "We do see the economy slowing and that's got to factor into the investment banks' earnings next year."

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

U.S. Video

  • Hero miles for military members: Real estate magnate's plea

    Chairman of the Fisher House Foundation, Ken Fisher, discusses the Hero Miles program with CNBC's Dina Gusovsky. During Military Appreciation Month, Fisher is asking every traveler to donate 1,000 of their miles to replenish the Hero Miles programs that is in danger of running out.

  • Cramer shuts down this market's haters

    "Mad Money" host Jim Cramer on why this market can't stop, won't stop.

  • From the battlefield to the boardroom

    Your Grateful Nation is dedicated to helping Special Forces veterans enter the corporate world and Knot Standard provides complimentary suits to vets. Mad Money's Jim Cramer spoke with Rob Clapper, Your Grateful executive director; John Ballay, Knot Standard co-founder and president; Tej Gill, retired U.S. Navy Seal; and Darren McB, active duty U.S. Navy Seal.