Lehman Brothers Reports Record Net Revenues of $4.4 Billion

Lehman Brothers Reports Record Net Revenues of $4.4 Billion

Lehman Brothers Reports Record Net Revenues of $4.4 Billion

The FINANCIAL -- Lehman Brothers Holdings Inc. reported net income of $886 million, or $1.54 per common share (diluted), for the fourth quarter ended November 30, 2007, representing decreases of 12% and 10%, respectively, from net income of $1.0 billion, or $1.72 per common share (diluted), reported for the fourth quarter of fiscal 2006. For the third quarter of fiscal 2007, net income was $887 million, or $1.54 per common share (diluted).

 

 


For the 2007 full fiscal year, net income and earnings per common share (diluted) increased 5%
and 7%, respectively, to a record $4.2 billion and $7.26, respectively, compared to $4.0 billion
and $6.81, respectively, in fiscal 2006. The 2006 results include an after-tax gain of $47 million,
or $0.08 per common share (diluted), from the cumulative effect of a change in accounting
principle associated with the Firm’s adoption of SFAS 123R on December 1, 2005.


Full Year Business Highlights


· Reported record net revenues, net income and earnings per common share (diluted) for
the fourth consecutive year
· Achieved record net revenues across all three business segments
· Reported record non-U.S. net revenues, which accounted for 50% of overall Firm net
revenues for the year, and a record 62% of Firmwide net revenues in the fourth quarter
· Grew assets under management to a record $282 billion
· Ranked #1 “Most Admired Securities Firm” by Fortune
· Ranked #1 in both Equity and Fixed Income Research by Institutional Investor’s “All-
America Research” polls for the fifth consecutive year; ranked #1 “Most Shareholder-
Friendly Company,” Brokers and Asset Management category by Institutional Investor


Chairman and Chief Executive Officer Richard S. Fuld, Jr. said, “Despite what continues to be a
difficult operating environment, the Firm's results for the quarter highlight our ability to perform
across market cycles and deliver value to our shareholders. Our global franchise and brand have
never been stronger, and our record results for the year reflect the continued diversified growth
of our businesses. As always, our people remain committed to managing risk and providing the
best solutions to our clients.”


Net revenues (total revenues less interest expense) for the fourth quarter of fiscal 2007 were $4.4 billion, a decrease of 3% from $4.5 billion reported in the fourth quarter of fiscal 2006 and an increase of 2% from $4.3 billion reported in the third quarter of fiscal 2007. Capital Markets net revenues decreased 10% to $2.7 billion in the fourth quarter of fiscal 2007 from $3.0 billion in the fourth quarter of fiscal 2006. Fixed Income Capital Markets reported net revenues of $860
million, a decrease of 60% from $2.1 billion in the fourth quarter of fiscal 2006, due to the very
challenging markets experienced during the period, although strong results from client activity
were reported in the Foreign Exchange and Commodities businesses. Fixed Income Capital
Markets recorded negative valuation adjustments on trading assets, principally in the Firm’s
Securitized Products and Real Estate businesses. These valuation adjustments were offset, in
part, by valuation gains on economic hedges and liabilities, as well as realized gains from the
sale of certain leveraged loan positions, resulting in a net revenue reduction in Fixed Income.

Capital Markets of approximately $830 million. Equities Capital Markets reported record net
revenues of $1.9 billion, more than double the $900 million reported in the fourth quarter of
fiscal 2006. This performance was driven by solid customer flow activities as well as gains from
private equity and the Firm’s investment in GLG Partners. These results represent the fourth
straight quarter that Equities Capital Markets has surpassed $1 billion in net revenues.
Investment Banking reported net revenues of $831 million, a decrease of 3% from $858 million
in the fourth quarter of fiscal 2006, driven by declines in debt and equity origination revenues,
which decreased 38% and 6%, respectively, from the prior year’s period. Merger and acquisition
advisory reported its second-highest net revenue quarter, an increase of 52% from the fourth
quarter of fiscal 2006. Investment Management reported record net revenues of $832 million in
the fourth quarter of fiscal 2007, an increase of 30% from $640 million in the fourth quarter of
fiscal 2006. This performance was driven by record revenues in Asset Management and strong
revenues in Private Investment Management. Assets under management grew to a record $282
billion.


For the full 2007 fiscal year, net revenues increased 10% to a record $19.3 billion, from $17.6
billion for fiscal 2006, with record net revenues in each business segment. For fiscal 2007, non-
U.S. revenues grew 49% to a record $9.6 billion, representing 50% of Firmwide net revenues.
Non-interest expenses for the fourth quarter of fiscal 2007 were $3.2 billion, compared to $3.0
billion in the fourth quarter of fiscal 2006 and $3.1 billion in the third quarter of fiscal 2007.
Compensation and benefits as a percentage of net revenues was 49.3% during the fourth quarter
of fiscal 2007, consistent with both the fourth quarter of fiscal 2006 and the third quarter of fiscal
2007. For the full 2007 fiscal year, compensation and benefits as a percentage of net revenues
remained at 49.3% compared to fiscal 2006. Non-personnel expenses in the fourth quarter of
fiscal 2007 were $996 million, compared with $979 million in the third quarter of fiscal 2007
and $809 million in the fourth quarter of fiscal 2006, reflecting continued investments in
growing the franchise. Non-personnel expenses for the full year of fiscal 2007 were $3.8 billion,
compared with $3.0 billion in fiscal 2006.


The Firm’s pre-tax margin was 28.0% for the fourth quarter of fiscal 2007 and 31.2% for the full
2007 fiscal year, compared to 32.8% for the fourth quarter of fiscal 2006 and 33.6% for the full 2006 fiscal year. Return on average common equity was 16.6% for the fourth quarter of fiscal
2007, compared with 22.3% for the fourth quarter of fiscal 2006. For the full 2007 fiscal year,
return on average common equity was 20.8%, compared with 23.4% for fiscal 2006. Return on
average tangible common equity was 20.6% for the fourth quarter of fiscal 2007, compared with
27.6% for the fourth quarter of fiscal 2006. For the full 2007 fiscal year, return on average
tangible common equity was 25.7%, compared with 29.1% for fiscal 2006.

As of November 30, 2007, Lehman Brothers’ total stockholders’ equity was $22.5 billion, and
total long-term capital (stockholders’ equity and long-term borrowings, excluding any
borrowings with remaining maturities of less than twelve months) was approximately $145.7
billion. Book value per common share was $39.45.


Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial
needs of corporations, governments and municipalities, institutional clients, and high net worth
individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in
equity and fixed income sales, trading and research, investment banking, private investment
management, asset management and private equity. The Firm is headquartered in New York,
with regional headquarters in London and Tokyo, and operates in a network of offices around the
world.

 

 


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