Lehman Beats on Mixed Bag (LEH)

Lehman Brothers (NYSE: LEH) is posting net income of $886 million.  On a earnings per share basis it posted $1.54 EPS versus $1.42 EPS estimates and revenues were $4.4 versus $4.25 Billion estimates.  What we noted yesterday was that Wall Street is going to look at write-downs and see what the commentary is on their future CDO and leveraged debt instrument exposure.  After that, comes the determination of whether or not it is believable or if it is fiction.

Chairman & CEO Richard S. Fuld, Jr. said, "Despite what continues to be a difficult operating environment, the Firm’s results for the quarter highlight our ability to perform across market cycles and deliver value to our shareholders. Our global franchise and brand have never been stronger, and our record results for the year reflect the continued diversified growth of our businesses. As always, our people remain committed to managing risk and providing the best solutions to our clients."

The results are lower year over year and of course the fixed income is to blame. Lehman’s Fixed Income Capital Markets segment reported revenues of $860 million, down 60% from $2.1 billion in the fourth quarter of 2006, due to the very challenging markets experienced during the period.  Fixed Income Capital Markets recorded negative valuation adjustments on trading assets by approximately $830 million after hedges and offsets.

As of November 30, Lehman Brothers’ total stockholders’ equity was $22.5 Billion, and total long-term capital was approximately $145.7 Billion. Lehman’s stated book value per common share was $39.45.

Shares initially traded up by 1% but then fell almost 3%.  It appears shares are down less than 1% now at $61.25 in pre-market trading.  It looks like we are going to have to wait for the conference call to see the true CDO and leveraged debt exposure.

Jon C. Ogg
December 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.