Lehman Bros. says earnings fell 80 percent in 3rd quarter

September 22, 1994|By Bloomberg Business News

NEW YORK -- Lehman Bros. Holdings Inc.'s third-quarter earnings fell 80 percent amid Wall Street's worst slump in four years, the firm said yesterday.

The world's fourth-largest underwriter of stocks and bonds said net income fell to $22 million, or 10 cents a share. The 144-year-old firm earned $112 million in the same quarter a year ago, when it was still owned by American Express Co. This year's quarter ended Aug. 31. The year-ago quarter ended Sept. 30.

"Difficult market conditions persisted throughout the quarter as interest rate uncertainties and inflationary concerns continued to dampen the activities of both issuers and investors," Chairman Richard Fuld Jr. said.

The results were buoyed by pretax merchant banking gains of $21 million, said Oppenheimer & Co.'s Steven Eisman, who took part in a conference call by Mr. Fuld for analysts. Lehman didn't say where the gains came from, Mr. Eisman said.

"Business is pretty grim," he said.

Lehman's results could be a preview for other securities firms when they report next month, as the fallout from five interest rate increases by the Federal Reserve this year continues.

The New York Stock Exchange said earlier this month that one-third of the 302 member firms that do business with the public lost money in the second quarter. The losses totaled $404 million, compared with record profits of $1.5 billion last year. One regional firm, A. G. Edwards Inc., said yesterday that net income for its fiscal second quarter fell 11 percent, to $31.6 million, or 51 cents a share, from $35.6 billion, or 60 cents.

At Lehman, net revenue, or gross revenues after interest, declined 19 percent, to $719 million. Investment banking revenue fell 8 percent, to $172 million. Commission revenue dropped 10 percent, to $113 million.

Lehman is in the midst of a cost-cutting effort aimed at reducing its payroll by about 300 jobs, or 3.4 percent of the total. In the past quarter, noninterest expenses fell 5 percent, to $686 million. Compensation and benefits dropped 13 percent, to $388 million.

In the analysts' conference call, Lehman said it would wait to see how its business develops before making additional cost cuts.

The third-quarter results exceed the mean estimate of three cents a share made by Zacks Investment Research.

The firm's stock closed down 37.5 cents yesterday, at $15.25.

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