Lehman's shares rise 3%

NEW YORK — Lehman Brothers Holdings Inc. on Wednesday delivered third-quarter profit above expectations as Wall Street's No. 4 securities firm relied on trading gains to make up for a slowdown in investment banking activity.

The languishing of the investment banking business might be temporary, as Lehman expects a record pipeline of deals that could power fourth-quarter earnings. Investors seemed pleased with the news, sending Lehman's shares up $2.04, or 3 percent, to close at $70.06 on the New York Stock Exchange.

The New York-based financial services firm said it was snared by challenging market conditions and signs the economy is moderating. The slow summer quarter not only curbed trading activities from the first half's blistering pace, but also dampened demand for merger advisory and initial public offerings.

Chairman and Chief Executive Richard Fuld, who in the past year has expanded the firm from its traditional roots as a bond house into more lucrative businesses, was still able to lead Lehman to its 16th straight quarterly profit. Although investment banking was weaker during the period, Fuld surprised Wall Street with equity trading gains despite a quarter that's particularly punishing for stocks.

"Market conditions during the third quarter were clearly more challenging than during the first half of the year," Fuld said in a statement. "However, despite the market environment and the typically slower activity of the summer months, these results are our best third-quarter results ever."

Indeed, Lehman reported net income applicable to common stock of $899 million, or $1.57 per share, compared with $864 million, or $1.47 per share, a year earlier.

Stronger performance from Lehman's equities capital markets business, along with the usual strength gleaned from fixed income, pushed revenue up 8 percent to $4.18 billion from $3.85 billion last year. The company's investment banking business, which helped power earnings during a record first half, saw revenue decline 11 percent from last year.

The numbers still came in ahead of Wall Street predictions for earnings of $1.49 per share on revenue of $4.01 billion, according to analysts polled by Thomson Financial.

Analysts lowered projections for U.S. investment banks several times during the quarter, fearing the industry wouldn't be able to compensate for a sharp decline in global stock markets and slowing economic growth.