With headlines full of mega-M&A deals -- and even high-profile IPOs -- the investment banks are certainly padding their bottom lines. Strong evidence of this came yesterday with Lehman Brothers Holdings' (NYSE:LEH) earnings report.
For the quarter ended Feb. 28, Lehman posted net income of $875 million, or $2.91 per share, which was up from $670 million in the same period a year earlier. The consensus was for $2.20 per share, according to Thomson First Call.
Moreover, during this period, revenues surged 21% to $3.81 billion, and the return on equity was an impressive 24.5%. In fact, the quarterly earnings and revenues were company records. On the news, the stock price increased $2.87 to $96.19.
Lehman is known for its expertise in fixed income. While interest rates have been rising lately, Lehman has been able to effectively manage the situation.
What's more, Lehman has been diversifying its business. For example, the company has beefed up its advisory services for M&A and IPOs. In the past quarter, it served as an advisor on four of the top 10 M&A deals, such as the Sprint (NYSE:FON)-Nextel (NASDAQ:NXTL) combination. Investment banking revenue, which, at just under $700 million quarterly, is only a quarter of capital markets revenue, increased 34%. The much larger capital markets business increased a more modest 21%.
Lehman believes that the economy is rebounding and that there is renewed confidence in Corporate America, which should continue the M&A wave. Actually, Lehman's CEO said his firm was now a "growth" company in his sector.
This week, three other major investment banks will report their numbers: Bear Stearns (NYSE:BSC), Goldman Sachs (NYSE:GS), and Morgan Stanley (NYSE:MWD). Expect these to look like growth companies for the moment as well.
Fool contributor Tom Taulli does not own shares mentioned in this article.
