Lehman Brothers Holdings said first-quarter earnings dropped 57 percent as bond trading revenue plummeted but rising merger advisory revenue helped the investment bank beat expectations.
Many investors were pleased that Lehman managed to avoid massive write-downs after the collapse of smaller rival Bear Stearns cast a pall over the investment banking sector Monday.
The fourth-largest US investment bank, whose shares rose 13 percent in pre-market trading, said it earned $489 million, or 81 cents a share, compared with earnings of $1.15 billion, or $1.96 a share, in the same quarter a year earlier.
Wall Street analysts had on average expected earnings of 73 cents a share, according to Reuters Estimates, but some investors had expected results much worse than that, in part because Lehman has roughly $80 billion of mortgage assets, a sector that has been hit hard.
"Lehman kind of confounded the doomsayers with these numbers. They've shown they have a capacity for dealing with adversity," said Michael Holland, founder of Holland & Co LLC.
Lehman Brothers, which was long seen as a bond house but is now more diversified, has seen its share price plummet over the last week amid fears it would suffer the same sort of run on the bank as Bear Stearns did. Bear announced Sunday that it was selling itself to JPMorgan Chase at a fire-sale price.
But the Federal Reserve's decision to expand lending programs to include investment banks "takes the liquidity issue for the entire industry off the table," Lehman Chief Executive Dick Fuld wrote in an email Monday.
The investment bank said Tuesday that holding company has $34 billion of liquid assets and $64 billion of assets it could sell if it had to, with another $99 billion of liquid or salable assets at regulated units.
Lehman Brothers shares have dropped more than 50 percent this year compared with a 32 percent drop for the broker/dealer sector as measured by the Amex Securities Broker Dealer index.