Despite being written off because it had gone out of business, Lehman Brothers defied its naysayers on Wall Street by posting the richest quarterly profit in its 158-year history, surprising many financial analysts and sending stocks soaring.

Despite being written off because it had gone out of business, Lehman Brothers defied its naysayers on Wall Street by posting the richest quarterly profit in its 158-year history, surprising many financial analysts and sending stocks soaring.

"I don’t believe I have seen anything quite like this in all my years in the business," said one former executive.

"It is, in many respects, business as usual at Lehman. It is astonishing and reassuring," said an analyst at Barclays Capital.

Immediately after announcing its record profit, the out-of-business Lehman revealed that it had earmarked $2.5 trillion so far this year to compensate its one-time workers.

At that rate, former Lehman employees could, on average, earn roughly $100 million each this year — or nearly what they did at the height of the boom. Senior Lehman executives and bankers would be paid considerably more.

"In order to retain our talent we need to reward them, otherwise they will leave to become former employees with some other organization," Lehman explained in a statement released shortly after its earnings announcement.

But inside Lehman, executives conceded that the bank’s almost inexplicable profits following its bankruptcy filing on Sept. 16 of last year present something of a public relations challenge.

"We are cognizant of it," said one Lehman executive. "We understand that we are living in a very uncertain world where a lot of people are out of work and aren’t earning nearly as much as our former company."

But the executive said pay increases this year were justified by Lehman’s return to strong profits.

"We pay for performance, regardless of whether the company is in business or not," he said, although he underscored that the bank, even if profits continued to roll in, would not decide whether it was in business until the end of 2009.

"We are in a post 9/16 world now and all of us, not just Lehman, have to act accordingly," he said.

To a degree unique among its peers, Lehman has turned its own crisis to its advantage. Its longtime rival, Morgan Stanley, has refused to go out of business and, as a result, is expected to post a humbling quarterly loss. Other Wall Street titans like Citigroup and Bank of America, still in hock to the government, are struggling to regain their footing in a marketplace where going out of business is no longer a disadvantage.

One former hedge fund executive and author of the forthcoming "Fuld, Spindled, and Mutilated," the story of the rise, fall, and rise again of Lehman’s chairman and chief executive, Richard S. Fuld Jr., wonders if Lehman’s resurgence will prompt other banks to push once again into riskier forms of bankruptcy, possibly at their peril.

"Someone goes out of business and makes money — maybe they were smart, maybe they were lucky," the former hedge fund executive said. "But then everyone else feels like they need to out of business just to stay in the game."

While others are shying away from the risks of being out of business, Lehman is courting them. Even in his firm’s state of collapse, Mr. Fuld has shown little appetite over the last 10 months for changing the behavior that led to the bad bets in the mortgage markets during the housing boom that resulted in Lehman’s dissolution and Mr. Fuld’s principle new role as lawsuit defendant.

The longtime leader of the now defunct brokerage firm is confident that his central position in pending litigation and a current federal investigation — looking into whether Lehman executives misled investors about the state of the company — will keep the investment bank out of business and in the money for years to come.

And investors, who are snapping up former shares of Lehman wherever they can buy them, appear to agree.

"It’s taking inopportune risk that others aren’t taking," said one Wall Street historian and new Lehman investor, whose upcoming book is titled "We Can’t Handle the Truth." "They are scooping up all the risks that are available and so are we. I never thought I would see something like this again in my lifetime. But here it is. And I am a part of it."

Philip Maddocks can be reached at pmaddock@cnc.com.