UPDATE 2-Moody's may cut Lehman after demotions
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NEW YORK, June 13 (Reuters) - Moody's Investors Service said on Friday it placed Lehman Brothers Holdings Inc. LEH.N on review for a possible downgrade, citing the investment bank's demotion of both its president and chief financial officer.
The brokerage demoted its Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory on Thursday, just days after saying it expected its first-ever loss as a public company.
It also follows a 61 percent slide in its shares this year. Earlier this week the brokerage raised $6 billion of fresh capital. Lehman said it expects its second-quarter loss to be $2.8 billion, driven mainly by poor trading results and hedging losses.
Moody's changed the outlook on Lehman's A1 rating to negative on June 9 in response to the loss forecast. An outlook change refers to a potential downgrade in the medium term, whereas a review for downgrade brings forward any ratings action to a matter of months.
"Although the objective of the management changes appeared to be an effort to assure accountability for the losses and to strengthen risk and financial controls, the changes nonetheless may be an additional factor that could exacerbate erosion in investor confidence," Moody's said in a statement.
A Lehman Brothers spokesperson was not immediately available for comment.
According to Reuters data, Lehman has $117 billion of bonds outstanding.
Moody's said the review would also include Lehman's strategy for retaining key employees, "who are the true franchise of any investment bank."
The review will also focus on potential further write-downs within Lehman's residential and commercial mortgage portfolios.
"As part of the rating review, which will (be) completed within the next three months, Moody's will assess the degree to which Lehman's various franchises have been affected by recent market conditions," it added.
Lehman will report its quarterly results on Monday.
Lehman's Prime-1 short-term rating was affirmed.
Lehman shares closed 13.7 percent higher on Friday, before the Moody's announcement. After the announcement, the shares dipped slightly in electronic trade.
News of the review could spell yet more trouble for Lehman's long-suffering shares.
"Even though the stock has come down dramatically lately there will be always reason to be nervous," said Richard Sichel, chief investment officer of Philadelphia Trust Co.
"Anyone who bought Lehman stock knows there is more risk and possible surprises."
Fitch Ratings on Monday cut Lehman's long-term ratings one notch to A+. S&P downgraded the long-term ratings on June 2 to A from A+.
(Reporting by Burton Frierson and Rodrigo Campos; Editing by Diane Craft)
