Wall Street brokers boast record profits

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The Independent Online

The Wall Street gravy train rolled on yesterday, as Lehman Brothers and Bear Stearns reported record-breaking financial results, thanks to soaring stock markets and booming merger and acquisition activity.

Lehman will begin paying annual bonuses this week, and promises to distribute $8.7bn among its 26,000 employees. That pales next to the sums being parceled out by Goldman Sachs, which posted Wall Street's biggest ever annual profit earlier this week, but Lehman boasted that it was distributing a greater proportion of its profits to staff, and the bank hopes this will give it an early advantage as the big brokers compete to attract additional staff in the new year.

Jeff Harte, analyst at Sandler O'Neill, said it was significant that Lehman was distributing 49.3 per cent of its revenues in salaries and bonuses, compared to just 43.7 per cent at Goldman, and could give it an advantage in the cut-throat battle to attract the best talent.

"Lehman is increasing the amount of investment in the future, which is often primarily in people" he said.

Lehman's net income for the financial year just ended hit $4bn for the first time, up 23 per cent. The bulk of that increase came from its capital markets business, from equity and bond trading. Profits at the core investment bank were up 5 per cent.

Bear Stearns boasted a 40 per cent rise in net income to $2.1bn, also driven by its capital markets business, and in particular by its strength in mortgage-backed securities. Business is being driven by the increasing numbers of hedge funds, who use brokers such as Lehman and Bear Stearns for trading and which are more active than traditional investors.

Lehman's chairman, Richard Fuld, said the bank "achieved outstanding results across all our business segments and geographic regions this year," but the bank's most recent quarter was not a record, and it surpassed Wall Street forecasts by a smaller margin than its rivals. As a result, its shares traded lower.

Analysts also criticised the relatively poor performance by Lehman's investment banking business in the final quarter. While Bear Stearns' fees from advising on mergers and other corporate transactions rose 57 per cent, at Lehman such advisory fees fell 7.2 per cent.