Lehman tops forecasts in hard quarter

Lehman Bros. Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds, said Thursday that fiscal fourth-quarter earnings fell and losses from the collapse of the sub-prime mortgage market would probably extend into next year.

But the brokerage’s profit exceeded analysts’ estimates. Diversification helped: Revenue from trading stocks more than doubled, and Lehman’s investment in hedge fund GLG Partners also boosted results.

The New York-based firm said net income declined 12% to $886 million, or $1.54 a share, in the quarter ended Nov. 30 from $1 billion, or $1.72, a year earlier.

Revenue fell 3% to $4.39 billion, with a record 62% coming from non-U.S. businesses.

While bond trading revenue plunged 60% to $860 million in the quarter, equity trading more than doubled to $1.9 billion.

Lehman took a fourth-quarter write-down of $3.5 billion on mortgage-related securities on its books that had fallen in value. But that was offset by $2 billion the company earned on hedges it put in place to protect itself as the mortgage market sank. After other offsets the net write-down was $830 million.

Still, further write-downs are likely in the first half of next year, said Erin Callan, Lehman’s chief financial officer.

“We expect the next couple of quarters to be quite tough on fixed income,” Callan said.

The company’s board gave Chief Executive Richard Fuld a $35-million stock award for the year as Lehman avoided the heavier losses that analysts predict Wall Street rivals Morgan Stanley and Bear Stearns Cos. will report next week.

Lehman shares dipped 45 cents to $61.37. They are down 21% this year.