Lehman Brothers, America’s biggest underwriter of mortgage-backed securities, said yesterday that fourth-quater net income fell 12 per cent after it took a further $830 million (£403 million) hit in its fixed-income business.

The bank announced net income of $886 million for the three months to November 30, down from $1 billion year-on-year. Full-year net income rose 5 per cent to a record $4.2 billion.

Lehman was the first of the major US investment banks to report fourth-quarter figures. Goldman Sachs, Bear Stearns and Morgan Stanley are due to release their results next week.

The figures beat analysts’ expectations but shares in Lehman, which have fallen 20 per cent this year, dropped almost 3 per cent to $60.10.

Lehman said net revenues in its fixed-income capital markets business fell 6 per cent to $860 million “due to very challenging markets”. It said the losses on securities and mortgages were partly offset by the sale of leveraged loans and by hedging.

The bank wrote down $700 million on sub-prime mortgage-related assets in the third quarter of 2007. The equities capital markets business reported more than $1 billion in net revenues for the fourth straight quarter.

The bonus pool for 28,500 staff, 2,600 more than last year, was 9.5 per cent higher at $9.5 billion.

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