A flight by investors to the perceived safety of bonds has supported profits Wall Street giant Lehman Brothers in the "most difficult operating environment in years".

The bank, reporting profits down by almost one third, credited its broad global and geographical presence for ensuring that the fall was not larger.

"The firm is showing that it can produce strong revenues and earnings even when one or more sectors of the industry are not performing well," chairman and chief executive Richard Fuld said.

Revenues from bond sales and trading operations, an area in which Lehman built its name, equalled company records, he said.

Mr Fuld added that Lehman Brothers was still active in bond and share markets despite being forced from its headquarters in the Three World Financial Center following the terrorist attacks on New York two weeks ago.

"Lehman Brothers remains operationally and financially strong," a statement on Tuesday said.

Insurance will cover expenses related to the switch to back-up facilities, the firm said.

Merger activity dries up

Lehman's profit of $309m for the June-to-August quarter compared with earnings of $457m a year before.

The result echoed a 41% profits slide, to $735m, for the quarter announced on Friday by Morgan Stanley Dean Witter, which put the rise largely down to a decline in company flotations and merger activity.

And analysts reported some relief that Lehman's profits had not declined further.

"[The results] were less bad than what [Wall] Street was expecting ... based on fixed income holding up pretty well under the circumstances," said UBS Warburg analyst Diane Glossman.

Mr Fuld said: "In a market environment that was among the most difficult in years, Lehman was able to produce a level of earnings... that underscores the significant strength and diversity of the firm's global franchise."