Feelin' All Right at Lehman

In the current environment, it's going to be hard to find an earnings report from a financial-services firm that doesn't splash a little cold water on your face. What's worth checking out, though, is whether the glass is still half-full when the splashing is over. Based on its fourth-quarter earnings release, I'd say the glass is at least half-full at Lehman Brothers (NYSE: LEH  ) .

Nonetheless, some elements of the report were disappointing. Net revenue and net income were down by 3% and 12%, respectively, versus the fourth quarter of 2006. The firm's capital markets division was hurt badly by its fixed-income results, which were down 60% from the prior year, thanks in large part to a net $830 million in valuation adjustments in areas such as securitized products and real estate. Disappointments like these, though, pale in comparison to the far more catastrophic results at competitors like Merrill Lynch (NYSE: MER  ) and Citigroup (NYSE: C  ) , which landed those CEOs in the unemployment line.

With such a big hit in fixed-income capital markets, other areas had to pick up the slack for Lehman. Equity capital markets carried more than its fair share of the weight; revenue in that group more than doubled year over year, from $900 million last year to $1.9 billion this year. Asset management also showed a strong 30% year-over-year bump, and the firm ended the quarter with $282 billion under management.

All in all, stakeholders in Lehman Brothers should be pretty pleased with the way the firm has held up during the market turmoil. Last quarter, it looked like the firm had gotten lucky and dodged a bullet, but now it seems more like Lehman may be quietly doing a lot of things right. Now the question is whether Goldman Sachs (NYSE: GS  ) , Bear Stearns (NYSE: BSC  ) , and Morgan Stanley (NYSE: MS  ) will have some similar not-so-bad news.

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