Lehman net falls less than expected

By Dan Wilchins

NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) said on Tuesday quarterly earnings fell 3.2 percent on writedowns linked to mortgages and leveraged loans, but its shares rose as the results beat expectations and the investment bank said the worst of the credit correction was over.

The results soothed investors concerned that the widening U.S. subprime mortgage and credit crisis would wallop investment bank earnings. Shares of Goldman Sachs Group Inc

(GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) also gained, on hopes their earnings reports later this week will also be strong.

"People were expecting considerably worse. Everybody was expecting bigger writedowns, given Lehman's exposure to the fixed income markets," said Lee Delaporte, director of research at Dreman Value Management, which has $22 billion of assets under management.

Lehman Brothers, traditionally seen as a U.S. bond house, has worked to bolster businesses including asset management and merger advisory, and now generates more than half its revenue outside the United States.

That diversification likely prevented the bank's results from being even weaker this quarter, analysts said. Bear Stearns Cos Inc, BSC.N which also reports earnings this week, is less diversified, and its shares edged lower.

Lehman said its earnings were $887 million, or $1.54 a share for the fiscal third quarter ended August 31, compared with $916 million, or $1.57 a share in the same quarter last year.

Analysts had on average expected earnings of $1.47 a share before exceptional items, according to Reuters Estimates.