Lehman Tops Targets on Smaller Than Expected Decline

Dec.13.07 | About: Lehman Brothers (LEH)

Shares of Lehman Brothers (LEH) were down almost 2% Thursday despite reporting EPS and revenue that beat Street estimates. "There's a lot of skepticism about the numbers. People are concerned about possible skeletons in the closet," analyst Tom Jalics told Bloomberg in an interview. The number-four U.S. investment bank said Q4 earnings were $886 million ($1.54/share), down from $1 billion ($1.72) a year ago, in the face of what CEO Richard Fuld called a "difficult operating environment," (full earnings call transcript later today). Total revenue was $4.39 billion, down from $4.53 billion last year; revenue from fixed-income sales and trading plunged to $860 million from $2.135 billion. Analysts surveyed by Reuters had expected EPS of $1.42 on revenue of $4.22 billion. It marks the first time in five years Lehman has reported two consecutive quarters of declining profits.

Lehman advised on 45 takeovers with a value of $296.3 billion during the quarter, more than triple last year's figure. Lehman did not take any asset writedowns; its Q3 writedown of about $700 million was low compared to those of other Wall Street banks. Lehman has said all of its CDOs are fully hedged. "Lehman's loss experience will ultimately fall below market expectations due to its effective risk-mitigation tactics," Fox-Pitt Kelton analyst Caronia Waller said. On Dec. 4, the firm agreed to acquired Van der Moolen's (VDM) NYSE specialist business for zero consideration, making it the sixth NYSE market-maker. There is speculation the NYSE is looking at rule changes to enhance specialist profitability (full story). Lehman shares are down 20% YTD, worse than the Amex Securities Broker Dealer index (-13%).

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