Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
Lehman Net Is Buoyed By Bond Operations
Summary: Lehman Brothers Holdings Inc. reported $1.57 EPS Wednesday morning, beating the consensus estimate of $1.49. Revenue rose 8.5% year over year, but fell 5.3% versus the prior quarter. Lehman's results were helped by strength in bond trading.
Comment on related stocks/ETFs: Lehman's stock (LEH) had its biggest two-day gain in over three years due to these results, rising from its pre-results close of $65.30 September 11 to just over $70 at close last night. Key details from the quarter: Trading revenue was up 13%, asset management revenue up 18%, investment banking revenue down 11% (but the company said its investment banking backlog was at an all-time high). Compensation as a percentage of revenue fell to 49.3% from 49.5%. Bloomberg has a more thorough write-up of the results than the WSJ, but the details and tone are in the conference call transcript. Stock implications: Traders will now focus on whether the positive trends reported by Goldman Sachs (NYSE:GS) on September 11th (see Erik Dellith's analysis) and Lehman are priced-in to Bear Stearns (NYSE:BSC), which reports this morning, and Morgan Stanley (NYSE:MS), which reports September 20th. Morgan Stanley may have more upside because there's a recovery element to the story; but its revenue growth may be restrained by its Discover credit card unit. Analysis of their results is available via email (free, no spam) or by bookmarking Seeking Alpha's financial sector page. A nugget for our sell-side readers: Lehman's average employee compensation was $260,000 so far this year, versus $542,000 at Goldman Sachs.
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