US investment bank Lehman Brothers Holdings Inc. said today its fiscal first-quarter earnings fell 57 per cent due to a steep decline in its capital markets business, but its shares rose in value as it easily beat gloomy Wall Street forecasts.
Net income for the quarter ending Feb. 29 fell to $489 million, or 81 cents per share, compared with earnings of $1.15 billion, or $1.96 per share, during the same quarter last year. Lehman's revenue fell 31 per cent to $3.5 billion during the first quarter.
Lehman Brothers took a $1.8 billion write-down during the first quarter because of deterioration in the credit markets. It had taken about $2.13 billion in write-downs in the previous two quarters combined, while financial services firms have taken about $160 billion in write-downs since the credit markets began to tighten.
Capital markets revenue fell 52 per cent to $1.7 billion because of continued deterioration of the credit and mortgage markets. Gains in products like high-grade corporate debt and foreign exchanges were more than offset by investors' lack of appetite for riskier products such as residential and commercial mortgage securities and acquisition finance.
Lehman's chairman and chief executive, Richard Fuld, said in a statement the current credit environment remains "challenging," but the bank maintains a strong capital base and liquidity position.
Lehman has $34 billion in available liquidity at its holding company.
Liquidity problems among investment banks have been a major question in recent days. Lehman's competitor Bear Stearns Cos. was forced to sell itself Sunday for about $2 per share in order to avoid bankruptcy. The sale came just days after its liquidity evaporated in a matter of hours, as investors and lenders worried over the company's investments in risky debt.
As mortgages increasingly defaulted in 2007, investors shied away from bonds backed by the risky loans for fear of the bonds defaulting. That lack of investor appetite led banks to cut the value of their holdings, and has severely reduced investment banks' capital markets and fixed income business.
Investment management operations at Lehman helped lessen the blow of the weakening credit markets. Lehman's investment management division posted record revenue of $968 million, 39 per cent more than the year-ago period.
Shares of Lehman rose 17.8 per cent to $37.40 in premarket trading.