Few in the analyst community are feigning shock over the bloodletting in investment banking revenues — more surprising was just how strong the fixed-income market proved to be for those, such as Lehman Brothers and Bear Stearns Cos., that were ready to take advantage of it.

Goldman Sachs Group, which reported second-quarter earnings Tuesday, said a 50% decline in revenues from investment banking from the year-ago period was a drag on earnings. But Lehman and Bear Stearns (see article, page 2), which reported Tuesday and Wednesday respectively, said an improved fixed-income environment had helped fuel profit increases. Despite market conditions that continue to plague securities firms, Lehman beat analyst expectations by nearly a quarter, reporting a 14% jump in profits, to $430 million for the quarter, or $1.38 per diluted share, 24 cents above consensus. Equities analysts adjusted their forecast for Lehman upward on Wednesday to reflect what they now see as a promising year for the company.

Guy Moszkowski of Salomon Smith Barney, the Citigroup unit, increased his fiscal 2001 earnings estimate for Lehman to $5.30 a share, from $5.10; his 2002 estimate remained at $6.49.

“As we predicted, share gains in equity and debt underwriting drove the bulk of the upside, sustained by solid expense management and extraordinarily resilient aggregate trading revenues despite well-documented sequential drags on fixed income, equity volatility, and spread-related revenue,” Mr. Moszkowski wrote.

Ms. Butte, in consensus, increased her fiscal 2001 earnings estimates for Lehman to $5.65 a share, from $5.35, and her fiscal 2002 estimates by 30 cents, to $6.40.

“While market activity is down, Lehman appears to be paying little attention as its investment banking revenues jumped 17% and capital markets/trading revenues gained 18%,” she wrote in a research note Tuesday. “From our point of view, the firm’s investments in high-growth, higher-margin businesses appear to be paying off.”

As a result of Goldman’s poor near-term outlook, analysts continued to trim 2001 and 2002 earnings estimates for the company. On Wednesday Bear Stearns & Co. analyst Amy S. Butte cut her 2001 estimates by 25 cents, to $5.05. Mr. Moszkowski also cut his 2001 earnings estimates for Goldman by 48 cents, to $4.72, and his 2002 estimates by 62 cents, to $6.10.

But even amid a lackluster environment for mergers and acquisitions and equity underwriting, Goldman will not try to compete with traditional banks by using its balance sheet as means of getting corporate underwriting and advising business in exchange for credit, the company said.

In a conference call Tuesday morning, David A. Viniar, Goldman Sachs’ chief financial officer, said the company would only use its balance sheet when “it is prudent to do so.”

Mark Constant, an equity analyst with Lehman Brothers, praised Mr. Viniar’s comments, noting that the practice can be a risky one.

“It doesn’t give you a competitive advantage — it just gives you an opportunity to shoot yourself in the long term,” Mr. Constant said. “High return on equity comes from selling your ideas and expertise, not capital.”

Lehman shares rose 4.69%, Goldman shares rose 0.25%, and Bear Stearns shares rose 3.32% in trading Wednesday.

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