Bloomberg News

NEW YORK - After weathering rough markets in the second quarter, Wall Street firms have benefited from smoother credit markets and a surge of mergers, according to analysts and money managers.

Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co., Lehman Brothers Holdings Inc., and Bear Stearns Cos., whose fiscal third quarters ended last month, will be the first to show how a U.S. capital markets recovery has boosted profits when they report results this month.

Overall, the securities industry's profits are expected to have risen 33% in the third quarter from the year earlier, according to a survey of analysts by First Call/Thomson Financial. And money managers expect firms to beat even that estimate, thanks to surging merger advisory fees and busier markets for initial public offerings and bonds.

"The business was strong and the summer slowdown brief," said Rob Morris, who manages Invesco's $1.6 billion Financial Services Fund. "The earnings reports we get out of the brokers should all be surprises on the upside."

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