Brisk trading, expansion cited as Lehman profits rise 5.6%

NEW YORK — Lehman Brothers Holdings Inc., the No. 4 U.S. investment house, said Wednesday robust trading and overseas expansion drove its first-quarter profit up 5.6 percent, matching Wall Street expectations.

Quarterly profit after paying preferred dividends rose to $1.13 billion, or $1.96 per share, for the three months ended Feb. 28 from $1.07 billion, or $1.83 per share, in the year-ago period.

Revenue grew 13 percent to $5.05 billion from $4.46 billion a year earlier.

Wall Street expected earnings of $1.96 per share and revenue of $4.97 billion, according to analysts surveyed by Thomson Financial.

"The brokers are still showing impressive revenue growth and profitability," said David Easthope, a senior analyst with financial research and consulting firm Celent LLC.

Despite relatively robust results, investors sent shares down 28 cents to close at $71.72 on the New York Stock Exchange. Wall Street has been concerned that financial companies will be slammed if the meltdown among subprime mortgage lenders begins to spill over into other markets.

And there was some evidence of that in Lehman's first-quarter results.

Lehman, primarily known as Wall Street's biggest bond trading house, said its fixed-income revenue rose 3 percent — the lowest growth-rate since last year's first quarter. To blame was "weakness in the U.S. residential mortgage sector," according to Chief Financial Officer Chris O'Meara.

He said Lehman's subprime business accounts for 3 percent of total revenue, and that the company's positions are "well protected" against subprime trouble through hedges. Some 25 percent of its own mortgage origination is subprime, he said