Moving the Market: Lehman Reports 47% Surge in Profit; Investment Banking Gives Results a Boost but Stock Drops on Market Worries
Lehman Brothers Holdings Inc. reported its second-best quarter ever, but investors focused on a weakening financial-markets environment that could crimp brokerage firm earnings going forward and sent the company's shares tumbling to their worst trading day in more than four years.</br></br>Citing strong results in investment banking and stock trading, Lehman reported net income of $1 billion, or $1.69 a share, for the second quarter ended May 31, up 47% from $683 million, or $1.13 a share, a year earlier, but down slightly from its record first quarter, when it earned $1.1 billion. Analysts polled by Thomson Financial had projected a profit of $1.61 a share.</br></br>Net revenue, or revenue minus interest expense, was $4.41 billion, up 35% from $3.28 billion a year earlier and down 1.1% from $4.46 billion in the first quarter.</br></br>In recent weeks, there has been concern that falling stock markets and rising interest rates may make it tougher for firms like Lehman to continue posting record results. Lehman's earnings, while strong, may give investors a road map for some of the trouble spots to come.</br></br>In a report to investors, Prudential Equity Group LLC analyst Michael Mayo said some of the firm's results were "mixed." Revenue from equity trading fell 7% quarter to quarter, in part, he said, because of the rocky stock market. The firm's investment-banking results, while up 28% from a year earlier, fell 11% from the previous quarter. The main reason: Debt underwriting fees fell 30% from the first quarter in part because of rising interest rates.