Banks Vs. Brokers

I thought summer was supposed to be a slow time on Wall Street. Apparently, no one told Lehman Brothers. The company reported great earnings today. Profits jumped 74%. Lehman earned $2.94 a share, well above Wall Street’s estimate of $2.37. The company sees its earnings growing 10% next year, and 8% in the year after that. With the new results, the stock is going for about 11 times earnings.

To be sure, this is the latest in a string of good quarters for Lehman, which has benefited from a robust bond environment in recent years, combined with a decision by management to further diversify its business into areas such as stock trading and investment banking. David Goldfarb, Lehman’s chief administrative officer, told analysts that the market environment was favorable in the third quarter, which helped boost the firm’s earnings.

It will be interesting to see how well the other big brokers do when they report their earnings. What I find interesting is how much better the brokers are doing than the major banks. These stocks usually track each other pretty closely, but the brokers have taken a solid lead in the past few months.

This chart shows how the brokers (the gold line) have climbed higher since May, while the banks (the black line) have barely moved.

Posted by Eddy Elfenbein on September 14th, 2005 at 3:19 pm

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