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Lehman Brothers


said Tuesday that its third-quarter profits rose 4%, led by higher revenue from trading commissions and interest income.

But the big investment firm's performance was significantly weaker than the second quarter of this year.

Lehman's earnings come a day after

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

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pleasantly surprised Wall Street by saying its third-quarter profits fell a lot less than anticipated. Goldman Sachs' better-than-expected earnings fueled a big rally Monday in shares of the storied investment firm, as well as stocks of its peers.

In the quarter, Lehman earned $916 million, or $1.57 a share, up from $879 million, or $1.47 a share, in the year-ago quarter. Net revenue rose 8% to $4.2 billion.

Lehman, just like Goldman Sachs, exceeded analyst expectations. The Thomson Financial consensus estimate had the investment firm earning $1.49 a share on revenue of $4 billion.

The third quarter normally is the weakest one for Wall Street firms, with many traders and investors taking the summer off. But many brokerage analysts had feared the quarter would be weaker than normal, given signs that the economy is slowing down. But so far, that hasn't proven to be the case.

Still, Lehman's third-quarter numbers paled compared to its red-hot performance in the second quarter of this year. Indeed, third-quarter profits were down by 9% on a sequential basis.

Compared to a year ago, Lehman posted a modest 6% gain in the quarter on revenue from principal transactions, which includes proprietary trading and investment gains. But investment banking revenue fell 11% from the year-ago quarter to $726 million.

The firm posted big revenue increases in commissions and interest income -- which comes mainly from fees on margin accounts and stock loans to hedge fund customers. Commission revenue rose 34% to $564 million, while revenue from interest and dividends rose 55% to $7.87 billion.

Noninterest expenses, which include compensation payments, rose 10% to $2.8 billion. But expenses fell 4% from the second quarter of this year.