Lehman Bros, one of the top Wall Street firms, yesterday reported a 32 per cent drop in quarterly profits as strong bond operations failed to offset a decline in investment banking and stock trading revenue.

The company, which was forced out of its lower Manhattan headquarters due to the September 11th air attack on the World Trade Centre, said insurance would cover related expenses.

The results echoed those of fellow top investment bank Morgan Stanley, which last week reported a steep third-quarter profit decline as fees from advising on mergers and helping companies to sell stock dried up this summer. Lehman's earnings were bolstered by fixed-income operations, as investors flocked to bonds as a safe haven from falling stock prices.

But the resulting economic uncertainty surrounding the attack had exacerbated poor stock market conditions and the near-term outlook for the investment banking business was rocky, Morgan Stanley and Lehman executives said.

Lehman reported net income of $309 million (€335 million), or $1.14 a share, for its fiscal third quarter to the end of August, down from $457 million, or $1.68 a share, a year earlier. Analysts had expected a profit of $1.08, according to research firm Thomson Financial/First Call.

Lehman's total net revenues for the quarter dropped 21 per cent to $1.63 billion as investment banking revenues fell 16 per cent and capital markets revenue declined 25 percent.

Lehman shares were up $1 at $52.55 in midday New York Stock Exchange trading. The firm has moved more than 6,000 workers from downtown Manhattan offices to locations elsewhere in the city and in New Jersey, Mr Goldfarb said. Lehman was uncertain how much lost revenues from disruptions it could recover.