Lehman Brothers: Great Not Quite Good Enough

Poor Lehman Brothers (NYSE:LEH). Since it reported earnings in the wake of a blowout quarter from rival Goldman Sachs (NYSE:GS), the bar was perhaps set unrealistically high. Even so, this investment bank still posted numbers that any shareholder should be more than happy with.

Net revenue rose 17% in the period, and each of the company's three major units posted double-digit improvements in their top-line results. Unlike Goldman, which saw a very modest decline in pre-tax profit margin, Lehman improved its profitability, and its earnings per share (excluding an accounting-related gain) climbed 20%.

I particularly noticed that Lehman's largest reporting segment, capital markets (in other words, trading), had the weakest revenue-growth performance. Now, 13% growth is nothing to cry about, but investment banking grew revenue at a 22% clip, while investment management saw revenue grow 33%.

Since Lehman did not report its daily-value-at-risk number like Goldman did, I can't say whether Lehman is extending themselves further into the market or pulling back a bit. I can say that it's a big player in mortgages, and a decline in those revenues hurt overall trading performance.

It certainly looks like investment banking's good times are still rolling. We're seeing more deals -- like AT&T (NYSE:T) and BellSouth (NYSE:BLS), or Capital One (NYSE:COF) and North Fork (NYSE:NFB) -- and companies remain largely flush with cash. Moreover, the international deal market seems to be picking up, which should be good news for a geographically diversified player like Lehman.

Whether you look large like Merrill Lynch (NYSE:MER) or small like Jefferies (NYSE:JEF), the I-banks have been hot, and valuations have been moving up. That makes me a little more cautious about buying into the sector today. Nevertheless, it's tough to ignore some of the best companies in any sector, and while Lehman's outperformance may have lagged Goldman this quarter, it's still a fine investment bank.

For more Foolish thoughts on big-time banking:

• Golden Days for Goldman Sachs
• Maybe a Bull Case for Merrill Lynch
• Lehman Caps Off a Solid Year

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).