- After hedges, the firm had a net impact of $1.8 billion, of which residential mortgage related positions accounted for $800 million net.
- On the equities side, the firm posted revenues of $1.4 billion which is up 6% year over year, on the back of strong performance.
- The firm posted higher revenues and execution services and somewhat offset by lower revenues and volatility business versus benchmark periods.
- It continues to actively grow the prime services revenues, with the balances growing to $194 billion which was an increase of 3%.

In fixed income, revenues of $262 million were significantly down from benchmark periods and market dislocations and illiquidity generated substantial mark-to-market adjustments across a range of asset classes.

- The core client franchise performed exceptionally well with record client revenues up 40% as evidenced by sales credits and high increase in the customer flow business.
- Liquid markets had increased revenues including interest rate products and foreign exchange, strong client activity and high grade debt with increased secondary trading on the back of a strong primary pipeline.

- Investment management posted record revenues of $968 million, up 39% year over year.
- Pretax income for the segment was $245 million.
- In the asset management component, the firm reported revenues of $618 million, up 49% year over year with increases in both traditional asset management as well as higher revenues from minority investments.
- Assets under management were $277 billion, which was down slightly versus the year end due to market deprecation.
- In private investment management which encompasses high net worth client business, the firm realized revenues of $350 million which is again up 25% from a year ago.

Market Environment:

- The firm realised very strong client flows and a robust trading environment which gives confidence in the underlying enterprise of the business.
- Risk management discipline allowed the firm to avoid any single outsized loss and the long term capital position, is set up for the purpose of weathering a difficult market environment.
- The firm believe the Fed’s actions are a strong positive step towards stabilizing the capital markets and certainly enhancing liquidity for quality assets.

Both equity and credit markets continued to decline, with significant issues continuing to weigh on the markets, , a substantial decline in liquidity, the ability to obtain leverage being challenged, certainly fears and questions of a US recession.

- The situation has been exacerbated by the weak US dollar, high commodity prices and further evidence of weak residential mortgage data.
- On the fixed income side, credit spreads in the US hit multiyear wides, spreads in triple A CMBS and ABS widened out substantially, 180 basis points in triple A CMBS and 140 in ABS.
- Mortgage backed spreads reached their all time wides, triple A CMBX out by 135, ABX out by 275 and a similar story in investment grade and non investment grade debt spreads.
- The equity markets sold off significantly impacted by weaker corporate earnings, ongoing concerns about the consumer and certainly a further slowdown in the housing market and housing price depreciation in the US.

Volatility and volumes remained at all time levels which actually provides a fantastic backdrop for the trading environment and for the firm’s own business model.

- In investment banking, there were certainly weaker demand for fixed income securities with wider credit spreads, weaker equity valuations and a general overall uneasiness around the globe with respect to a global economy which led to lower underwriting activity.
- With the decreased availability of credit, sponsor activity decline substantially and the volume of announced M&A declined 19% sequentially and about 24% year over year.
- M&A completed volumes were down 46% and 35% in the comparable periods.

Liquidity Management:

- The liquidity pool is comprised of cash and cash equivalents, with minimal reliance on commercial paper, short term unsecured financing or asset backed commercial paper programs.
- The firm has no reliance on secured funding that is supported by whole loans or other esoteric collateral.
- The holding company liquidity pool which is invested in cash and cash equivalent assets was $34 billion and this had dropped to $30 billion as at 17 March 2008 due to the reduction in the outstanding commercial paper.

Total repo exclusive of the match book was $215 billion of which a substantial majority of this collateral is eligible to be pledged under the new Fed facility.

- Customer free credit balances are $5 billion, and these are not used in any way to fund firm assets.
- The firm recently successfully completed the renewal of the three year syndicated unsecured bank facility on substantially similar terms to the prior facility.
- Moody’s reaffirmed the A1 credit rating on 17 March 2008 with some very good commentary about the strength of the capital base in the franchise and the liquidity.

Key questions and answers from the first quarter earnings call conducted by Lehman Brothers Hooldings Inc. (LEH: chart) on March 18, 2008.

Meredith Whitney (Oppenheimer & Co.): Comment on the outstanding issue of a lack of a permanent buyer for so many of these securities?

Erin Callan: There are less liquid available buyers today than there were six months ago, nine months ago. As a result you have seen the balance sheet move in a way that reflects very good profitable trading activity.

We did have a deliberate decision this quarter to take leverage down which is more appropriate for the increased illiquidity of the balance sheet and if the environment continues to stay this way, we will continue to be focus on that discipline.

Prashant Bhatia (Citigroup): On the Fed facility, can you talk about how you view that from an opportunity perspective?

Erin Callan: We are not looking at it as deleveraging mechanisms, we look at it certainly, one, most importantly as a statement of confidence to other counter parties in the market who provide repo financing on various asset classes that there is an alternative.