Wall Street Swimming in Profits (GS, LEH, BSC, MS, MER)

Includes: BSC, GS, LEH, MER, MS
by: Eddy Elfenbein

Eddy Elfenbein submits: Heavens to Murgatroyd! Wall Street is swimming in profits. Thanks to heavy trading volume and a flurry of M&A activity, Wall Street firms are reporting ginormous earnings. The profits are so high, even Wall Street itself is surprised.

First up was Goldman Sachs (GS) which floored the market on Tuesday. Goldman’s net income soar 64% to $2.48 billion. No one saw that coming. Funny thing, one of the little ironies of Wall Street is that the investment houses are the hardest businesses to read. So whatever it is Goldman does behind those doors, they’re doing a heck of a lot of it.

Put it this way, Goldman made more coin last quarter than it did during all of 2002. The company’s asset management business (think, hedge funds) doubled. Goldman’s crushed Wall Street’s forecast by 54%. This was their third straight record quarter, and the company raised its dividend by 40%.

Yesterday, Lehman Brothers (LEH) followed up with another blowout report. Actually, I feel a little sorry for them since Goldman had set the bar so high. Lehman had record earnings of $1.09 billion. Excluding an accounting charge, earning-per-share came in at $3.50, a 26.8% increase over last year’s first quarter. That easily topped Wall Street’s expectation of $3.17 a share. Although, the stock sold off a little at first, so I’m not exactly sure what the real expectations were.

For the past several years, Lehman has been the shining star of the big houses. The company is traditionally known as a bond house, but Richard Fuld, the CEO, has worked to diversify their business. Plus, he’s probably noticed that the yield curve doesn’t exactly curve anymore.

Then Bear Stearns (BSC) said this morning that it's also making some serious cash. Wall Street was looking for $2.95 a share. BA! Bear Stearns made a cool $3.54. Profits jumped 36% to $514.2 million.

But not everything is great for Bear this morning. There's also the little issue of the $250 million fine for fraudulent market timing and late trading of mutual funds.

According to NYSE Regulation, the exchange's regulatory arm, Bear Stearns engaged in a pattern of deceptive market timing and late trading of fund shares from 1999 through 2003. The trades were designed to take advantage of the time between the markets' closing and the new share values posted by mutual fund companies.

Bear Stearns settled the case without admitting or denying the charges. The company will pay $90 million in fines and relinquish $160 million in profits and interest.

Morgan Stanley (MS) will report is earnings next week, and Merrill Lynch (MER) will follow in April.