Lehman result raises hopes for Europe's banks

By Andrew Hurst, European Banking Correspondent

ZURICH (Reuters) - Lehman Brothers' LEH.N better than expected fiscal third-quarter results may augur well for European banks with big investment banking units who start reporting next month, analysts said on Tuesday.

The results soothed investors, despite a 3.2 percent fall in earnings for the three months ended August 31 and a $700 million write-down of mortgage and leveraged loan assets. Lehman's shares were up 3.12 percent at $60.45 by 1550 GMT in New York.

"Revenues of $4.3 billion were in line with expectations despite a $700 million asset writedown on the fixed income side," said ABN AMRO in a research note.

"This bodes well for the European capital market banks, especially those with a large exposure to equities and primary: Credit Suisse (CSGN.VX), UBS (UBSN.VX), BNP Paribas (BNPP.PA), SocGen (SOGN.PA)," it added.

But analysts said the Lehman statement did not shed much light on how business had played out over the three months, particularly in August, when the global liquidity crunch hit with full force.

"There are a lot of questions to ask. How did the months evolve and what is the growth write-down?" said one London-based analyst.

Others said they hoped Lehman would reveal more about how it had calculated the $700 million dollar write-down.

"The problem with the Lehman numbers is there is no balance sheet explanation of how they get to these figures," said Peter Thorne at Helvea in London.

Other major U.S. investment banks are due to report fiscal third-quarter earnings this week including Morgan Stanley (MS.N), Bear Stearns BSC.N and Goldman Sachs (GS.N).

These banks, whose annual reporting year runs from November to November, closed their books for the third quarter at the end of August, one month before European banks.

European banking stocks were well supported on Tuesday afternoon, partly on a rebound after the British government pledged to stand by customer savings at troubled British mortgage lender Northern Rock NRK.L.

Europe's three top investment banks Deutsche Bank (DBKGn.DE), UBS and Credit Suisse, were up by 1.7 percent, 1.15 percent and 1.19 percent respectively at 1415 GMT.

"Obviously what we are seeing is a relief rally," said Andreas Venditti at ZKB in Zurich. "The worst fears have not come through even though they have taken valuation reductions."

Non-U.S. revenues in investment banking were higher than usual at 53 percent of group revenues, which some analysts said was encouraging for some European banks.

"From a geographical perspective, Europe and Asia seems stronger than the U.S. and that clearly supports the French banking franchises which have lower dependence on the U.S. market," said one analyst who asked not to be identified.