Loomis Sayles buying Lehman bonds

By Jennifer Ablan

NEW YORK (Reuters) - Investment manager Loomis Sayles, one of the biggest and most widely followed U.S. bond fund managers, has been buying Lehman Brothers debt over the past several days and is not shy about transacting with the investment bank, its vice chairman told Reuters on Wednesday.

"The credit is good at Lehman," said Dan Fuss, vice chairman of Boston-based Loomis Sayles, which oversees more than $100 billion in fixed-income securities. Fuss added that he considers Lehman common shares, which fell 18 percent over three days, to be "dirt cheap."

Wednesday, Lehman shares traded up over 4.0 percent at around $32, but not before hitting a session high of $33.09 on news of Fuss' recent purchases and of an upgrade by Merrill Lynch.

News of Fuss' Lehman purchase was followed up by news that Merrill upgraded Lehman to a buy with a price objective of $37.

Guy Moszkowski and M. Patrick Davitt, analysts at Merrill, said Lehman shares were oversold. Lehman shares have "meaningfully undershot fair value in the last few days on speculation and concerns that are not justified, in our opinion, given access to the (Federal Reserve) primary dealer facility and ample liquidity," they said in a report.

"Also, we believe concerns of a "Bear-like" event at Lehman are unfounded as Lehman is not subject to the same funding risk at Bear Stearns."

Fuss has been buying Lehman corporate debt for several days and bought some of the bank's convertible preferred securities on Tuesday, saying they represent a good long-term value, he told Reuters in an interview. He declined to provide amounts of what he has purchased.

Fuss is also buying corporate bonds of other investment banks, he said.

"We have been buying other financial institutions' debt as well as Lehman's," said Fuss, who is also co-manager of the $18 billion Loomis Sayles Bond Fund.

"We have no hesitation whatsoever at all in dealing with Lehman," he said, adding: "They are a fine firm and financially strong."

(Reporting by Jennifer Ablan in New York)