Lehman Shakes Bear Talk With Earnings Beat

Updated from 9:25 a.m. EDT

Lehman Brothers(LEH Quote) posted its smallest net income in five years, but beat analysts' estimates, heartening investors who have been waiting for the next shoe to drop in a harried financial system.

Lehman posted a profit of $489 million, or 81 cents a share, for the first quarter. Net income fell 58% from the year-ago period, in which it posted earnings of $1.15 billion, or $1.96 a share. Fourth-quarter net income was $886 million, or $1.54 a share.

Still, the New York based investment bank showed some strength in investment management and mergers and acquisitions, which helped it to beat analyst estimates of about 72 cents, according to Bloomberg .

Goldman, Lehman Dropped Hot Potatoes, Didn't Get Burned

"In what remains a challenging operating environment, our results reflect the value of our continued commitment to building a diversified platform and our focus on managing risk and maintaining a strong capital and liquidity position," said CEO Richard Fuld in a company statement. "This strategy has allowed us to support our clients through these difficult and volatile markets, while continuing to build and strengthen our global franchise for our shareholders."

Lehman's first-quarter earnings report comes a day after 85-year-old rival investment firm Bear Stearns (BSC Quote) nearly went bankrupt over the weekend and received a $2-a-share buyout offer from JPMorgan Chase(JPM Quote) in what many are viewing as the worst credit crisis in decades.

Lehman posted first-quarter net revenues of $3.5 billion, representing a 20% decrease from the fourth quarter when it recorded net revenues of $4.4 billion. The firm said that made a $1.8 billion adjustment based on mark-to-market pricing for debt held on its book.

The bank also made a point of highlighting its liquidity in noting that it has nearly $200 billion in liquid assets and cash a day after its stock shed nearly 20% due to worries that met Bear Stearns's fate might also be in store at Lehman, since the firm has a similar fixed-income platform.

Lehman's prime brokerage business helped it to net revenues of $1.4 billion, an increase of 6% from the same period last year. In investment banking, Lehman saw a 2% increase in net revenues, which came in at $867 million from a year ago.

Lehman's shares were up 17.5% in recent premarket trading, largely because it showed to investors that it's not Bear Stearns.

"It seems to me investor expectations were below the sell side," said Jeff Harte analyst at Sandler O'Neill Partners. "Actual investors were expecting a lower number than consensus."

Rival Goldman Sachs(GS Quote) also beat estimates, calming jittery investors.

Know What You Own: Lehman Brothers operates in the financial services industry, and some of the other stocks in its field include Citigroup (C Quote), Morgan Stanley (MS Quote) and Merrill Lynch (MER Quote). These stocks were recently trading at ($19.44, +4.40%), ($38.85, +6.79%) and ($43.46, +5.54%) respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.