Roaring merger activity and resilient trading revenue fueled strong growth in fourth-quarter earnings for the biggest U.S. investment banks, capping what may be a record year for Wall Street.
Starting this week, four of the largest securities firms will report results for the quarter ended Nov. 30. Overall equities trading rebounded after a weak September, merger and acquisition activity was strong and fixed-income markets continued to defy skeptics predicting a slump, analysts said.
Lehman Bros. Holdings Inc. is seen reporting another strong quarter when it kicks off earnings season Tuesday. Earnings are expected to rise 32% on a 25% bump in revenue, as a resilient mortgage business sustains growth in its fixed-income business.
Lehman and the rest of Wall Street also benefited as equities trading rebounded in October and November after a sluggish summer.
Goldman Sachs Group Inc., which reports Thursday, is expected to deliver a 36% increase in per-share profit on 30% growth in revenue, according to Reuters Estimates.
"Goldman's quarter is going to be a 'barn burner,' " Sanford Bernstein analyst Brad Hintz said in a recent report.
Analysts take a dimmer view on Bear Stearns Cos., which still derives much of its revenue from bonds. Bear Stearns is expected to report flat to slightly lower earnings, as rising rates and the thin spread between long- and short-term rates squeezed results.
Bear Stearns earnings are seen slipping less than 1%, excluding one-time gains, on a 1.5% drop in revenue. Profit, including items, should rise 1.5%, according to Reuters Estimates.
At Morgan Stanley, quarterly results will be marred by the enormous costs of a management shake-up this year, legal expenses and a surge in credit card losses.
The diversified banking and brokerage giant is expected to report earnings growth of less than 1%, although revenue rose an estimated 23%. Higher fixed-income trading and continued strength in mergers and acquisitions will once again be offset by weakness in the company's retail businesses, analysts forecast.
That said, Wall Street firms will bask in the glow of their best year since the technology stock craze of 2000.
"Even if the fourth quarter is just average, it will be one of the most profitable years in the history of Wall Street," said Boris Rauls, a securities industry analyst at Boston Consulting Group.
The Week Ahead
* The Labor Department reports productivity and labor costs for the third quarter.
* The Commerce Department reports factory orders for October.
* Quarterly earnings reports expected from Kroger Co. and Sears Holdings Corp.
* The Federal Reserve reports on consumer credit for October.
* Quarterly earnings report expected from Costco Wholesale Corp.