Financial sector takes fresh hit on Lehman worries
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From Times staff writer Walter Hamilton:
Uncle Sam saved Fannie Mae and Freddie Mac, but brokerage Lehman Bros. Holdings Inc. is having a harder time finding a sugar daddy -- raising new fears about the firm’s future and about the financial system overall.
The company’s shares have plunged today, losing more than one-third of their value, after news reports said talks between Lehman and a South Korean bank about a possible cash infusion had ended.
Worries about Lehman are hammering financial stocks across the board, one day after a relief rally stoked by the government’s rescue of Fannie and Freddie.
Lehman’s shares were down $3.83, or 27%, to $10.32 at about 10:30 a.m. PDT. The price fell as low as $8 early on. The Dow Jones industrial average was off 112 points, or 1%, to 11,399.
CNBC reported that the company may rush out its fiscal third-quarter earnings report today, to try to calm investors, instead of waiting to report them on schedule next week.
Lehman had been negotiating to have government-owned Korea Development Bank pump in money to bolster the brokerage’s capital, which has been eroded by the mortgage crisis. But Dow Jones News Service reported today that the talks had ended. Neither Korea Development Bank nor Lehman would comment.
Following the emergency takeover of Bear Stearns Cos. by JPMorgan Chase & Co. in March, Lehman was left as the smallest of the four remaining independent investment banks -- and, as with Bear, its future has become increasingly clouded by heavy losses tied to mortgage-related assets.
Analysts expect Lehman to divulge another round of mammoth asset write-downs when it reports third-quarter results. Meredith Whitney at Oppenheimer & Co. estimates a $4-billion write-off and a $2.70-a-share loss for the period.
The company’s inability, so far, to find a partner to bolster its capital is deepening concerns about the financial system as a whole today. It looks as if the once plentiful supply of outside investors ready and willing to bail out U.S. banking institutions is running low.
Continuing losses and stock-price declines at giants such as Citigroup Inc. and Merrill Lynch & Co. have pounded the investments that sovereign wealth funds and other outside investors made in those companies over the last year. So it’s no wonder other institutional investors are gun-shy, analysts say.
Lehman faces tough choices in trying to raise money on its own. It could sell its prized Neuberger Berman asset-management unit to boost its capital reserves, but that would sacrifice what could be a lucrative future profit stream.
Some analysts say the company is dragging its feet.
Lehman refuses to rid itself of distressed assets -- reasoning that it doesn’t want to sell at fire-sale prices -- but is simply prolonging it woes by overestimating their actual worth, Richard Bove, an analyst at Ladenburg Thalmann & Co., said in a report today.
‘This is depressing shareholders and infuriating insiders,’ he wrote.
Lehman has promised to unveil ‘key strategic initiatives’ in its quarterly earnings report. The market seems to be demanding to see them ASAP.