Lehman Brothers Quarterly Profit up 27 Percent

Lehman Brothers Holdings Inc. (LEH), the nation's fourth-largest investment bank, said Tuesday robust stock trading and buyout business pushed second-quarter profit up 27 percent year-over-year.

For the three months ended May 31, profit after paying preferred dividends rose to $1.26 billion, or $2.21 per share, from $986 million, or $1.69 per share, a year earlier.

Fees charged for stock trading amid a record run on Wall Street, as well as those charged to companies for advice on takeover deals, helped drive Lehman's business during the quarter. Revenue rose 25 percent to $5.51 billion from $4.41 billion a year prior.

Results topped Wall Street projections for earnings of $1.88 per share on revenue of $4.97 billion, according to analysts polled by Thomson Financial.

Chairman and Chief Executive Richard Fuld said in a statement the bank's diversification efforts contributed to strong growth in non-U.S. net revenue, which represented nearly half of total net revenue for the quarter.

Fuld, who has led Lehman since it was spun off from American Express (AXP) in 1994, has transformed the company into one of Wall Street's biggest investment banks. While Lehman's bond business has traditionally been its biggest revenue stream, Fuld has steered the bank into more profitable businesses globally, such as merger and acquisition advisory.

Diversifying the firm has allowed Lehman to remain profitable even as some of its key businesses lag. For example, this year the company has been able to compensate for weakness in its mortgage banking business related to subprime loans.

Lehman's capital markets business posted revenue of $3.6 billion during the quarter, up 17 percent from $3.1 billion a year earlier. However, the fixed income segment of that business — which includes bonds, derivatives and credit products — fell 14 percent to $2.2 billion because of "continued weakness in the U.S. residential mortgage business."

Investment banking posted revenue of $1.2 billion, up 55 percent from $741 million a year earlier. The flurry of takeover deals during the quarter caused many companies to seek financing, driving Lehman's debt origination up 87 percent to $530 million and equity origination up 60 percent to $333 million.

Shares of Lehman, which fell 10.8 percent during the second quarter, closed at $75.68 on Monday. Shares rose $2.42, or 3.2 percent, to $78.10 in premarket electronic trading.