Investment bank Lehman Brothers Holdings Inc on June 12 said that its second-quarter profit rose 27 percent as surging bond underwriting and stock trading revenue more than made up for bond trading results hurt by US mortgage weakness.
Lehman's bond business has traditionally been seen as its crown jewel, and underwriting revenue in that sector rose 86 percent. But in recent years, Lehman has also been investing heavily in areas including equities trading and asset management.
Those areas helped offset a 14 percent decline in bond trading revenue, which was hurt by weakness in the US mortgage market, as well as decreased revenue in interest-rate products and municipal bonds.
Lehman, the fourth-largest US investment bank by market value, said its net income rose to $1.27 billion, or $2.21 a share, for the three months ended May 31, compared with $1 billion, or $1.69, a year earlier. Analysts had on average expected earnings before special items of $1.87 a share, according to Reuters Estimates. Revenue rose to $5.5 billion from $4.4 billion a year earlier.
Lehman Brothers has missed out on the stock market rally that began in March, as investors have fretted about the company's exposure to home loans made to people with poor credit. Such subprime mortgages have suffered from rising defaults recently. Lehman has said that its exposure to subprime mortgages is small.
From March 1 through Monday's close, the Standard & Poor's 500 index has risen more than 7.5 percent, while Lehman's shares have risen just 3.3 percent.