Past Quarterly Earnings

Third Quarter 1998
Lehman Brothers Reports Earnings of $151 Million in Third Quarter;
Record of $662 Million for Nine Months

Announces Program to Buy Back 7.5 Million Shares

Net Income For First Nine Months Surpasses All of 1997;
Return on Equity Over 20%

NEW YORK, September 23, 1998 —
Lehman Brothers Holdings Inc. (NYSE: LEH) today reported net income of $151 million, or $1.10 per common share (diluted), for the third quarter ended August 31, 1998. Net income was down from the $197 million, or $1.30 per share (diluted) reported for the third quarter of fiscal 1997.

The Firm also announced that its Board of Directors authorized the repurchase of up to an additional 7.5 million shares of Lehman Brothers stock, as part of the Firm's program to actively manage its capital position and common shares outstanding. The Board had already authorized the repurchase of up to 4.5 million shares earlier this year. At August 31, 1998, Lehman Brothers had approximately 117 million common shares outstanding.

For the first nine months of fiscal 1998, net income was a record $662 million, an increase of 43 percent from $462 million for the first nine months of fiscal 1997.

As previously announced, Lehman Brothers said that earnings for the current-year third quarter included a reduction in net income of approximately $60 million, reflecting the impact of significant volatility in Russian and other emerging markets. This includes trading losses and additional credit reserves that the Firm has set aside to offset the possible future impact of counterparty exposures.

"Given the almost unprecedented volatility in global markets, the third quarter clearly proved to be a difficult period for Lehman Brothers and the industry in general," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "However, our numbers show that the Firm is benefiting from the significant improvement we have made in shifting our business mix over the past few years. Even with the turmoil in fixed income markets globally, our strength in equities and M&A advisory throughout the quarter enabled us to post a level of quarterly net income that boosted the Firm to record earnings for the first nine months of the fiscal year."

Mr. Fuld noted that earnings for the first nine months of fiscal 1998 have already surpassed Lehman Brothers' full year net income for 1997 of $647 million.

Net revenues (total revenues less interest expense) for the third quarter were $930 million, down from $1,071 million in the third quarter of fiscal 1997. For the first nine months of fiscal 1998, net revenues were $3.448 billion, an increase of 21 percent from $2.850 billion in the fiscal 1997 first nine months.

Mr. Fuld noted that despite a significant slowdown in underwriting towards the end of the quarter, the Firm posted its highest-ever total of investment banking fees in the fiscal 1998 third quarter. The Firm's equity business also posted strong results, driven by a large origination calendar, derivatives activities, and record customer volumes.

Non-interest expenses for the quarter were $723 million. Compensation and benefits as a percentage of net revenues remained at 50.7 percent for the 14th consecutive quarter. Non-personnel expenses for the third quarter were $251 million, essentially flat with the previous fiscal year's quarter, despite continued investments in a number of key strategic businesses, and increased technology expenditures related to the Year 2000 and European Monetary Union.

For the first nine months of fiscal 1998, non-interest expenses were $2.490 billion. Non-personnel expenses were $741 million, compared with $733 million in the first nine months of fiscal 1997.

For the first nine months, the Firm's pre-tax margin was 27.8 percent, compared with 23.6 percent for the first nine months of fiscal 1997; for the same period, return on common equity was 20.1 percent, compared with 16.5 percent in fiscal 1997. For the fiscal 1998 third quarter, the Firm's pre-tax margin was 22.3 percent, compared with 26.2 percent in the third quarter of fiscal 1997. Return on common equity was 13 percent for the quarter ended August 31, 1998, compared with 20.5 percent for the third quarter of 1997.

Return on common equity is calculated before any adjustments for special preferred dividends.

As of August 31, 1998, Lehman Brothers stockholders' equity was $5.349 billion, and total capital (stockholders' equity and long-term debt) was $33.730 billion. Book value per common share was $36.35.

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.

1. Effective December 1997, basic and diluted earnings per share replaced the primary and fully diluted calculations in accordance with Statement of Financial Accounting Standards No. 128.
2. Return on common equity calculated using net income before adjusting for special preferred dividends.
3. Return on common equity calculated using net income after adjusting for special preferred dividends.
4. Matched book is defined as the lower of securities purchased under agreements to resell or securities sold under agreements to repurchase.
5. This calculation includes restricted stock units granted under the Lehman Stock Award Programs included in stockholders' equity.
6. The increase at 11/30/97 represents the establishment of a trust to provide common stock voting rights to employees who hold restricted stock units. The establishment of the trust did not impact the total number of shares used in the computation of earnings per common share.