Updated from 8:43 a.m. EST

Lehman Brothers

(LEH)

reported a 22% gain in fourth-quarter earnings, easily beating forecasts thanks to big gains in investment banking and asset-management fees.

The New York securities company earned $585 million, or $1.96 a share, in the quarter ended Nov. 30, compared with $505 million, or $1.71 a share, a year ago. Net revenue rose 25% from a year ago to $2.88 billion.

Wall Street analysts had expected Lehman's earnings to decline a bit from a year ago. The Thomson Financial consensus estimate had the brokerage earning $1.69 a share. The firm also beat the quarterly revenue estimate of $2.3 billion.

It's not uncommon for Wall Street analysts to underestimate brokerage earnings, especially when it comes to predicting trading revenue.

Lehman is the first of four big Wall Street investment houses to report earnings over the next two weeks, with

Goldman Sachs

(GS) - Get Report

slated to report on Thursday. Going into the fourth quarter, most analysts were expecting earnings at the brokers to rebound following a lackluster third quarter. But if the Lehman numbers are any indication, predictions for a fourth-quarter revival in the securities industry look sound.

In early trading, investors warmed up to the report, sending Lehman up $1.90, or 2%, to $87.55. The stock was up 12% in 2004 heading into Wednesday.

Adding fuel to the fire, Lehman executives, in a conference call with analysts, offered a generally bullish outlook for the economy and corporate profits next year.

"There's more conviction in risk taking and more cash being allocated into equities,'' says David Goldfarb, Lehman's chief administrative officer. "This improved tone means corporate profitability will continue to grow in 2005.''

As for the quarter just ended, Lehman closed 2004 fiscal year on a high note.

The firm said the $608 million in investment banking revenues, a 27% gain over the prior year, were a record for any single quarter. Much of the gains in investment banking revenues were fueled by 95% surge in fees earned from advising on corporate deals.

Lehman is best known on Wall Street for being a bond powerhouse and its debt underwriting and bond trading numbers were strong in the quarter. Revenue from debt underwriting were $288 million, up modestly from last year's $275 million. But revenue from bond issuance rose sharply from the third quarter's $241 million.

Stock underwriting revenue was also strong, coming in at $141 million, up from $110 million in the year-ago quarter.

But the performances of the firm's asset management business, which now includes the former

Neuberger & Berman

, was the bigger story in the quarter. Revenue from managing money for investors was $232 million, up from $70 million a year ago and up from $191 million in the third quarter.

Principal transactions, which includes bond and equity trading, also rose. In the quarter, Lehman took in $1.26 billion in revenues from those transactions, a 22% gain from the year-ago period.