Lehman Brothers, which is seen by many analysts as among Wall Street’s most vulnerable firms, gave its investors some much-needed cheer yesterday as it reported stronger-than-expected first-quarter profits and moved to reassure shareholders and creditors that it has adequate capital reserves.

Lehman Brothers reported a 57 per cent decline in its first quarter profit to $489 million (£242 million) after taking a $2 billion hit from the credit crunch. Some $800 million of the writedown related to residential home loans, with a further $700 million stemming from commercial mortgages.

The firm also wrote down by $500 million its book of leveraged loans, which are used to finance private equity buyouts. Lehman’s first-quarter profit equates to 81 cents a share, which is significantly ahead of the consensus analyst forecast of 72 cents and sent the group’s stock up 46 per cent to close at $46.49. However, the share price jump, from $31.75, followed declines of 15 per cent and 19 per cent in the previous two trading days as Bear Stearns’s firesale to JPMorgan was hammered out. Bear Stearns was unable to meet a surge in margin calls by its creditors late last week as the credit crunch continued to escalate.

After the Bear Stearns sale, Lehman had been among the group of Wall Street firms viewed as most likely to follow suit, in large part because it was the biggest underwriter of mortgage-backed bonds last year and owned $80 billion of them at the end of November.

However, Lehman Brothers was at pains yesterday to reassure investors that it was safe, as Erin Callan, chief financial officer, pointed out that it had $30 billion in cash and $64 billion in liquid assets. Mr Callan’s comments came a day after Richard Fuld, the Lehman Brothers chief executive, sought to soothe investors that the “liquidity issue” – both for the firm and the securities industry as a whole – was “off the table”.

This is because the US Federal Reserve decided over the weekend that it would extend the so-called discount window facility through which it offers cheap loans to the banks to securities firms as well.

Lehman reported an 88 per cent revenue decline in its fixed income unit, to $262 million, in the first quarter as the division bore the brunt of the mortgage losses. Meanwhile, equities-related revenues rose by 6 per cent to $1.4 billion, merger advisory fees jumped by 34 per cent to $330 million and investment management revenue rose by 39 per cent to $968 million.

David Viniar, the chief financial officer of Goldman Sachs, threw his weight behind Lehman Brothers yesterday as his own firm reported a better-than-expected 53 per cent decline in first-quarter net income.

“We think they’re a very, very good firm and we think they will continue to be. They’re a good healthy competitor,” Mr Viniar said.

Lehman Brothers is arranging financing for Carlsberg’s £7.8 billion pound takeover of Scottish & Newcastle, which was agreed on January 25.

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