Past Quarterly Earnings

Second Quarter 1999
Lehman Brothers Reports Record Earnings of
$330 Million in Second Quarter

Return on Equity Rises to 26.3%; Six Month Earnings a Record $540 Million

NEW YORK, June 22, 1999 —
Lehman Brothers Holdings Inc. (NYSE: LEH) today reported net income of $330 million, or $2.09 per common share (diluted), for the second quarter ended May 31, 1999. The quarter's performance represented the highest quarterly earnings Lehman Brothers has ever posted, surpassing the $324 million earned in the fiscal 1998 second quarter, and increasing by 56% from the $211 million earned in the first quarter of 1999.

For the first six months of fiscal 1999, net income was a record $540 million, an increase of 6 percent from $511 million in net income for the first half of fiscal 1998.

Net income applicable to common shareholders was unchanged from the second quarter of fiscal 1998; however, it increased by 35 percent over the 1999 first quarter. Earnings per share decreased slightly from the $2.12 (diluted) posted in the year earlier quarter, but increased by 33 percent from $1.57 (diluted) in the fiscal 1999 first quarter.

"As the numbers indicate, this was a terrific quarter and first six months for Lehman Brothers," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "In the second half of 1998, we showed that the Firm could be profitable in difficult market conditions. In the second quarter just ended, we demonstrated that Lehman Brothers can be among the top performers in the industry in good market conditions."

Mr. Fuld noted that the strong performance in revenues, operating margin, net income, and return on equity in the fiscal 1999 second quarter reflected the continuing successful shift in the Firm's business mix to high-return, franchise-based activities, particularly equities and M&A advisory.

Net revenues (total revenues less interest expense) for the second quarter were $1.455 billion, down slightly from $1.473 billion in the second quarter of fiscal 1998. Mr. Fuld noted that the quarter was the second best the Firm had ever posted in terms of net revenues, reflecting across-the-board strength in Lehman Brothers' investment banking, equities, and fixed income businesses. In particular, the Firm's Global Equities business posted its best quarter ever, which was indicative of an active syndicate calendar, record revenues in derivatives, and strong sales and trading activity in the U.S. and Europe. Investment banking activity also remained strong, particularly in Europe and in M&A advisory around the world.

For the first six months of fiscal 1999, net revenues were a record $2.573 billion, compared with $2.518 billion in the fiscal 1998 first half.

Non-interest expenses for the second quarter were $989 million. Nonpersonnel expenses for the same period were $251 million, essentially the same as in the previous fiscal year's second quarter, despite continued investments in a number of key strategic businesses. Compensation and benefits as a percentage of net revenues remained at 50.7 percent for the 17th successive quarter.

For the fiscal 1999 first half, non-interest expenses were $1.798 billion. Nonpersonnel expenses were $493 million, compared with $490 million in the first six months of fiscal 1998.

For the fiscal 1999 second quarter, the Firm's pre-tax margin was 32.0 percent, relatively unchanged from the second quarter of fiscal 1998, and up from 27.6 percent in the first quarter of fiscal 1999. Return on common equity was 26.3 percent for the quarter ended May 31, 1999, compared with 29.9 percent a year ago and 17.2 percent in the current year's first quarter. For the first six months of fiscal 1999, the Firm's pre-tax margin was 30.1 percent, compared with 29.8 percent for the first six months of fiscal 1998; for the same period, return on common equity was 21.8 percent, compared with 23.9 percent in fiscal 1998. (Return on common equity for the second fiscal quarter and six months of both 1999 and 1998 is calculated using net income before adjusting for a special preferred dividend.)

As of May 31, 1999, Lehman Brothers stockholders' equity and trust preferred securities were $6.5 billion and total capital (stockholders' equity, trust preferred, and long-term debt) was $34.9 billion. Book value per common share was $40.58.

As a result of the level of earnings Lehman Brothers attained in the first six months of 1999 and 1998, earnings per share calculations include the impact of a special preferred dividend of $50 million expected to be paid to American Express Company and to Nippon Life Insurance Company at year end. American Express and Nippon Life are entitled to receive an annual non-cumulative preferred dividend equal to 50 percent of the amount by which the Firm's net income for the full fiscal year exceeds $400 million, up to a maximum of $50 million per year, through mid-year 2002.

Lehman Brothers is a global investment bank with leadership positions in corporate finance, advisory services, municipal finance and fixed income and equity sales, trading and research. Lehman Brothers serves the financial needs of corporate, government and institutional clients, and high-net-worth individuals through offices in major financial centers worldwide.