The brokerage house Lehman Brothers Holdings Inc. (LEH) blew past Wall Street's forecasts for its first quarter profit Tuesday, posting a 32 percent rise in net earnings thanks to record revenues in investment banking and capital markets. Its shares rose nearly 3 percent on the news.

Lehman earned $875 million, or $2.91 per share, in the three months ended Feb. 28 compared to $670 million, or $2.21 per share, in the first quarter of 2004. Revenues rose 21 percent to $3.81 billion from $3.14 billion a year ago.

Revenues, net income and earnings per share all set quarterly records for Lehman.

Analysts surveyed by Thomson First Call had expected earnings of $2.20 per share on revenues of $3.14 billion.

Lehman Brothers shares rose $2.55 to $95.87 on the New York Stock Exchange (search). The stock has traded in a 52-week range of $67.25 to $94.70.

"The market environment was quite favorable for our business in the quarter," said David Goldfarb, Lehman's chief administrative officer. "And we feel that market conditions that led us to this record quarter will remain constructive."

Goldfarb noted that 35 percent of the company's total revenues came from Europe and Asia, where the brokerage has made recent inroads.

"We are now more relevant in more asset classes to more clients in more regions than ever before," he said.

Revenues from the firm's investment banking business rose 34 percent from last year, and the company noted that it served as an adviser in four of the top 10 mergers and acquisition deals in the quarter, including SBC Communications Inc.'s (SBC) bid for AT&T Corp. (T) and Sprint Corp.'s (FON) merger with Nextel Communications Inc. (NXTL).

The company's capital markets division saw a 21 percent jump in revenues thanks to an increase in its customers' appetite for risk and strength in its mortgage brokering business, said Christopher O'Meara, chief financial officer. He added that the company's equity business had its best quarter since 2001.

Lehman's investment management division saw a 5 percent increase in revenues, it's second best showing. The division includes both institutional and private client management.

Non-interest expenses for the quarter rose to $2.5 billion from $2.1 billion a year ago.

Looking ahead through the rest of 2005, Goldfarb said the global economy should continue growing at a steady pace, as would corporate earnings. Lehman expects the pace of mergers and acquisitions to rise, along with investors' tolerance for risk. Goldfarb added that the company could run into trouble should oil continue to rise or if inflation takes hold, but added that the global economy "continued to see resiliency" to many of these factors.

Goldfarb did not give any solid estimates for future earnings.