S&P: Goldman, Bear, Morgan Stanley, Lehman defy expectations

Standard & Poor's said in a report that the third-quarter performances of the four large U.S. broker-dealers reporting earnings last week defied market expectations, for the most part.

Goldman Sachs Group Inc. (AA-/stable/A-1+), in particular, showed why it is uniquely positioned to thrive in volatile markets, reporting third-quarter net revenues of $12.3 billion and net income of $2.8 billion, a 79% year-on-year increase, the agency said.

As expected, S&P noted that Bear Stearns took the biggest earnings hit, suffering an 88% year-on-year decline in fixed-income revenues, owing to weakness in mortgage and credit businesses.

At Morgan Stanley, third-quarter net income of $1.5 billion was 41% below that of the prior record quarter and down 18% year-on-year, the agency added.

Lehman Brothers Holdings Inc., which was the first out of the reporting gate on Sept. 18, posted better-than-expected results, the agency said, adding that net revenues of $4.3 billion showed modest growth year on year, although declining by 22% sequentially, owing to weakness primarily in fixed-income underwriting.

"Although we are not currently anticipating any ratings actions, we remain cautious with respect to the brokers' longer term performance, as well as their ongoing ability to generate new business while funding inflated balance sheets," said S&P credit analyst Diane Hinton.

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