NEW YORK (Reuters) - Lehman Brothers Holdings Inc LEH.N said on Thursday fourth-quarter earnings fell 11 percent, as the credit market crisis triggered write-downs, and the company said further write-downs were possible.
Lehman beat analysts' expectations, but the results were a reminder that a number of U.S. investment banks could take write-downs in the fourth quarter as the value of mortgages and other securities declines and debt-trading volumes remain low.
"I don't think anybody can think we've seen the last of the write-downs here," said Adam Compton, co-head of global financials research at RCM Global Investors in San Francisco.
Lehman shares fell 0.73 percent amid broad declines in financial stocks.
Lehman recorded an $830 million net write-down during the quarter, and was cautious about the market environment. Before hedges and other items, the total write-down was $3.5 billion.
"We're trying not to be too optimistic ... that this is the bottom," Lehman Chief Financial Officer Erin Callan said on a conference call, adding that asset price declines could continue for several more quarters.
Last quarter, then-CFO Chris O'Meara said: "I think the worst of this credit correction is behind us."
Lehman, the fourth-largest U.S. investment bank, said fiscal fourth-quarter earnings were $886 million, or $1.54 a share for the quarter ended Nov. 30. That was down from $1 billion, or $1.72, in the same quarter last year.
Analysts, on average, had expected earnings of $1.42 a share, according to Reuters Estimates.
Results were helped by items including gains of $500 million from private equity investments and increases in the value of its stake in hedge fund manager GLG Partners. The company also had $320 million of gains from the weakening of bonds Lehman issued. Some critics of Lehman Brothers said that gains of this variety could be difficult to repeat in the long term.
Lehman generally expects to earn an average of $250 million to $300 million a quarter from private equity, Lehman CFO Erin Callan said in an interview.
Gains from GLG helped lift equities trading revenue to $1.87 billion from $900 million last year. Equities trading revenue was more than double bond trading revenue in the fourth quarter. Bond trading revenue fell 60 percent to $860 million.
Lehman, traditionally regarded as a bond house, has been making significant investments in recent years in merger advisory, stock underwriting and equity trading.
The investment bank has also tried to generate more business internationally. A record 62 percent of revenues for the fourth quarter came from outside the United States.
Lehman's revenue fell 3 percent to $4.39 billion.
Lehman shares fell 0.73 percent, or 45 cents, to close at $61.37 on the New York Stock Exchange.
But other investment banks were hit much harder. Bear Stearns Cos Inc BSC.N shares fell 2.43 percent, or $2.45, to $98.39, while Goldman Sachs Group (GS.N) shares were down 1.93 percent, or $4.10, at $208.48. Bear, Goldman, and Morgan Stanley (MS.N) all report earnings next week.
Lehman's $830 million of write-downs were mainly in its real estate businesses and repackaged debt known as asset-backed securities.
Declines in asset values are not a positive, but Lehman's write-downs are much lower than many Wall Street competitors. Merrill Lynch & Co Inc MER.N, for example, recorded $8.4 billion of write-downs in the third quarter, which cost then-chief executive Stanley O'Neal his job.
Lehman CEO Richard Fuld, meanwhile, was awarded about $35 million of stock for 2007.
Wall Street firms are broadly bracing for write-downs amid weakening mortgage and credit markets.
Bank of America Corp (BAC.N) CEO Ken Lewis said on Wednesday that fourth-quarter results would be disappointing due to write-downs and lower trading revenue. Wachovia Corp WB.N CEO Ken Thompson said the bank was likely to set aside $1 billion for loan losses.
Lehman's shares have fallen about 20 percent this year, underperforming the Amex Securities Broker Dealer index, .XBD which has fallen about 13 percent, but outperforming competitors including Merrill Lynch.
Additional reporting by Joseph A. Giannone, Tim McLaughlin, Dane Hamilton, Christian Plumb, and Megan Davies, editing by Gary Hill