Lehman reports profit up 27% in 2nd quarter

The Baltimore Sun

NEW YORK -- Lehman Brothers, the nation's fourth-largest investment bank, reported yesterday that its profit in the second quarter rose 27 percent, a record for the firm and potentially auguring a good week for Wall Street earnings reports.

Lehman reported net income of $1.3 billion, or $2.21 a share, for the three months that ended May 31, topping the $1 billion it earned in the period a year ago. Net revenue was $5.5 billion.

"Our record results for the second quarter and the first half reflect our ongoing commitment to achieving diversified growth," Chief Executive Officer Richard S. Fuld Jr. said in a statement.

Buoyed by a prolonged run of deal making and the profit from trading in their own accounts, Wall Street firms like Lehman have enjoyed a string of strong quarters.

Nearly all of Lehman's various businesses reported growth with equities trading showing the biggest jump, rising 94 percent, to $1.7 billion.

Bolstered by continued growth in mergers and acquisitions, especially in the red-hot private equity sector, Lehman reported investment banking revenue of $1.2 billion, a 55 percent jump. Revenue from investment management grew to $768 million, up 30 percent from last year.

The only dark spot was fixed-income trading, which declined to $1.9 billion, down 14 percent from the period a year ago. Much of that unit's weakness came from the subprime market, where Lehman has traditionally benefited by packaging and selling mortgage-backed securities.

In a conference call, Chief Financial Officer Christopher M. O'Meara acknowledged that the subprime mortgage implosion had been a drag on performance. But he said the firm did not anticipate those troubles seeping into the wider credit markets.

"We continue to believe the subprime mortgage challenges are and will continue to be contained to this asset class," he said, adding that the worst of the difficulties in the market may have passed.

The firm has bolstered its operations outside the United States: About 48 percent of its net revenue for the quarter came from non-domestic sources, up 37 percent from the same time last year.

Lehman's report bodes well for other Wall Street firms - Goldman Sachs Group Inc. and Bear Stearns Cos. post results tomorrow.

They are expected to show that sharp international growth, trading and investment banking offset any weak areas - a key as financial institutions face the possibility that interest rates will not fall this year.

The Associated Press contributed to this article.

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