[R]1:00PM New York—Lehman Brothers Tuesday provided the closest hint of the impact that the U.S subprime mortgage market has had on financial companies. The group reported third quarter turnover rose 3% to $4.3 billion from a year ago. Earnings per share were ahead of market expectations.[/R]

Lehman Brothers Holdings Inc (LEH: chart) reported third quarter net revenue declined 22% to $4.3 billion from $5.5 billion recorded in the second quarter of 2007. For the first nine months of fiscal 2007, Lehman Brothers saw turnover climbing 14% to $13.1 billion from a year earlier. Of the third quarter net turnover, non-U.S. revenue contributed 53%.

Second quarter net income at $887 million or $1.54 per diluted share was down 3% from a year ago. The numbers compare unfavorably with second quarter net earnings at $1.3 billion and earnings per diluted share at $2.21. Third quarter earnings per share were ahead of consensus analysts forecast at $1.48 according to Thomson Financial survey.

During the third quarter, Lehman Brothers shrink 6.4% below industry average growth at 18.5%. Lehman is expected to report a growth of 3.5% in the third quarter, which is below average industry growth at 10% again. For the year, analysts estimate Lehman will grow at 9.3% against industry median growth of 7.9%. Analysts predict revenue in the fourth quarter will climb to $4.8 billion and $19.61 billion for the full year.

For the first nine months, Lehman Brothers reported net income rose 10% to $3.3 billion, or $5.71 per diluted share, which was up 12%. During the same period in 2006, net income stood at $3.0 billion, or $5.09 per common diluted share.

In Q3, firmer earnings were seen in investment management, investment banking and equities capital markets. Capital markets saw net turnover of $2.4 billion, down 14% from $2.8 billion from a year ago. Equities capital markets reported its second highest net revenue quarter, with net revenue up 64% to $1.4 billion driven by stronger client activity in both cash and derivative products. Investment banking netted $1.1 billion and investment management $802 million.

Lehman’s pre-tax margin was 28% in third quarter versus 32.7% same period in 2006 while return on equity dropped to 17.1% from 21% a year earlier.

In opening trade, Lehman Brothers’ stocks were up 4% to $61 but lost ground in the afternoon trading to $59 and rebounded to $60.80. Lehman Brothers shares have traded in the region $49.06 and $89.18 in the 52 weeks of trading. The stock has fallen from a high $89.18 to $59.20 Tuesday. Market capitalisation at $31.11 billion remains the smallest against peers, Goldman Sachs Group Inc, Morgan Stanley and Merrill & Lynch whose market value stands at between $62 billion and $77 billion. Lehman Brothers is trading at historic price to earnings ratio of 7.86. Analysts expect the company to report fourth quarter earnings per share at $1.78 and full-year 2007 at $7.44 versus 2006’s comparative figures at $1.73 and $6.81 respectively.