Lehman Brothers ( LEH) beat estimates in the fourth quarter, despite profit falling 12%.

For the three months ending Nov. 30, the New York investment bank made $886 million, or $1.54 a share. That's down 12% from the year-ago period in which it made $1 billion or $1.72 a share, but flat compared with the third quarter. Revenue slipped 3% to $4.4 billion in the quarter, Lehman said.

Analysts on average expected the company to earn $1.42 a share in the final quarter of the year, according to Thomson Financial.

For the full year, Lehman's profit rose 5% to $4.2 billion, or $7.26 a share, compared to $4 billion or $6.81 a share in 2006.

"Despite what continues to be a difficult operating environment, the firm's results for the quarter highlight our ability to perform across market cycles and deliver value to our shareholders," said Chairman and CEO Richard S. Fuld Jr. "Our global franchise and brand have never been stronger, and our record results for the year reflect the continued diversified growth of our businesses."

Lehman, the first among its brokerage brethren to report fourth-quarter earnings, provides a somewhat optimistic start to the quarterly reporting season for big Wall Street banks. Goldman Sachs ( GS), Morgan Stanley ( MS) and Bear Stearns ( BSC) are expected to report next week.

As the credit markets roiled this year, Lehman has been one of the few firms to avoid the mega-writedowns from leveraged loans and collateralized debt obligations, or CDOs. In the fourth quarter, Lehman took an $830 million writedown, after a more than $1 billion writedown in the third quarter, the bank said.

Meanwhile, other firms including Citigroup ( C) and Merrill Lynch ( MER) reported billions in writedowns of CDOs.

Still Lehman's capital markets business dropped 10% to $2.7 billion in the quarter, as its fixed income revenues plunged 60% to $860 million. Lehman attributed the drop to the "very challenging markets experienced during the period," despite "strong results" from client activity in foreign exchange and commodities businesses, it said.

The company recorded "negative valuation adjustments" on trading assets, primarily from the firm's securitized products and real estate businesses, it said. The valuation adjustments were offset by gains on economic hedges and liabilities, as well as realized gains from the sale of certain leveraged loan positions, resulting in a net revenue reduction in fixed income capital markets of approximately $830 million, it said.

Equities capital markets on the other hand reported "record" net revenues of $1.9 billion, more than double the year-earlier quarter. Investment banking reported net revenues of $831 million, down 3% from the fourth quarter of fiscal 2006, largely driven by declines in debt and equity origination revenues, which decreased 38% and 6%, respectively, from the prior year's period.

Shares fell around 2% in early trading on Thursday.

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