NEW YORK (Reuters) - Lehman Brothers Holdings Inc <LEH.N> said on Tuesday first-quarter earnings dropped 57 percent as bond-trading revenue plummeted but surging merger advisory results helped the investment bank beat analyst expectations.
By Dan Wilchins
NEW YORK (Reuters) - Lehman Brothers Holdings Inc <LEH.N> said on Tuesday first-quarter earnings dropped 57 percent as bond-trading revenue plummeted but surging merger advisory results helped the investment bank beat analyst expectations.
Shares rose 19 percent in early trading as investors, ready for the worst after Bear Stearns Cos <BSC.N> collapsed, breathed a sigh of relief.
"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.
!ADVERTISEMENT!Lehman said it earned $489 million, or 81 cents a share in the quarter ended Feb 29, compared with earnings of $1.15 billion, or $1.96 a share, in the same period 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 had roughly $80 billion of commercial and residential mortgage assets as of the fourth quarter. In recent weeks, the market value of property loans previously seen as safe has dropped.
Mortgage exposure helped pull bond-trading revenue down 88 percent to $272 million.
Merger advisory revenue rose 34 percent to $330 million and investment management revenue was up 39 percent to $968 million.
The fourth-largest investment bank said it has $34 billion of liquid assets and access to another $163 billion of salable assets, as the company tries to soothe investors spooked by the run on Bear Stearns last week.
Net revenue fell 30 percent to $3.5 billion, hurt by bond-trading revenue that fell to $262 million from $2.2 billion a year earlier.
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 a similar fate to Bear. Bear announced on Sunday that it was selling itself to JPMorgan Chase & Co <JPM.N> at a fire-sale price.
But in addition to Lehman's access to some $190 billion of assets, it can also borrow directly from the U.S. Federal Reserve as of Monday. The Fed typically lends only to commercial banks but is allowed to lend to investment banks to protect the stability of the financial system.
The Fed'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 on Monday.
Lehman Brothers has so far avoided some of the massive write-downs that shook banks like Morgan Stanley <MS.N> and Merrill Lynch & Co Inc <MER.N>.
In the fourth quarter, Lehman recorded an $830 million write-down, or $3.5 billion before hedging and other items, compared with Morgan Stanley's $9.4 billion and Merrill's $16 billion. Morgan Stanley and Merrill both raised outside capital to help offset the impact of write-downs.
But some investors argue that Lehman should be writing down more, given its exposure to mortgages and other assets facing difficulty now.
Lehman Brothers shares have dropped more than 40 percent this year compared with a 28 percent drop for the broker/dealer sector as measured by the Amex Securities Broker Dealer index <.XBD>. The shares were up $6.04 at $37.79.
(Reporting by Dan Wilchins, editing by Mark Porter)
