Lehman Defying Financial Market Malaise (LEH, GS, BSC, MS)

Lehman Brothers Holdings Inc. (NYSE: LEH) has just reported net income of $887 million, or $1.54 per common share (diluted), for the third quarter ended August 31, 2007.  This does represent a drop of 3% and 2%, respectively, from net income of $916 million, or $1.57 per common share (diluted). First Call had estimates at $1.47 on EPS.

Net revenues (less interest expense) for the third quarter of fiscal 2007 were $4.3 billion, an increase of 3% from $4.2 billion reported in the third quarter of fiscal 2006 and a decrease of 22% from the record $5.5 billion reported in the second quarter of fiscal 2007.  First Call was also $4.3 Billion in estimates.

Chairman and Chief Executive Officer Richard S. Fuld, Jr.: "Despite challenging conditions in the markets, our results once again demonstrate the diversity and financial strength of the Lehman Brothers franchise, as well as our ability to perform across cycles. For the quarter, we reported record net revenues in Investment Management, and our second highest net revenues in both Investment Banking and Equities Capital Markets. In addition, more than half of our net revenues for the quarter came from outside the U.S. We remain focused on delivering significant long term value for our clients and shareholders."

Lehman is warning of substantial valuation reductions in certain portfolios and lower performing assets.  Hedges appear to have offset some of the negatives.  Equity, asset management, cash & derivatives, and investment banking were all bright spots.

Shares are now up 4% pre-market at $61.10, and th 52-week trading range is $49.06 to $86.18.  If the brokers can all somehow manage to do this well considering the environment then there are going to be some relief buyers even more than this pop.  Others reporting this week are Goldman Sachs (NYSE:GS), Bear Stearns (NYSE:BSC), and Morgan Stanley (NYSE:MS).

Jon C. Ogg
September 18, 2007