June 9, 2008 / 11:10 AM / 11 years ago

Lehman raises $6 bln, expects big 2nd-quarter loss

NEW YORK (Reuters) - Lehman Brothers Holdings Inc on Monday raised $6 billion in capital and projected a worse-than-forecasted quarterly loss, sending its shares swooning to a new five-year low.

The exterior of the world headquarters for Lehman Brothers is seen in New York June 4, 2008. REUTERS/Brendan McDermi

Lehman’s expected $2.77 billion quarterly loss — the first in its history as a public company — also knocked rival investment bank stocks lower, as confidence faded in a quick end to credit crunch-related pain.

Lehman, which blamed the projected loss on $3.7 billion of write-downs from trades and hedges gone sour, said it is now hoping to put investors’ questions about its capital to rest and focus on the future.

“We raised a boatload of capital today. We’ve got to get down to performing now ... That’s where our emphasis is going to be,” CFO Erin Callan told Reuters.

Callan said on a conference call that the bank’s share offerings on Monday were “substantially oversubscribed.”

But critics said the bank had been inconsistent with its message and still had more work to do.

“They raised billions of dollars they said they didn’t need to replace losses they said they didn’t have,” said David Einhorn of hedge fund Greenlight Capital, who is shorting Lehman shares in a bet they will decline.

Einhorn told Reuters Lehman is still carrying too much risk on its balance sheet.

Investors have become increasingly skittish about Lehman’s health in recent months after the global credit crisis triggered a run on the bank at Bear Stearns Cos in March. Bear Stearns sold itself at a fire sale price to JPMorgan Chase & Co last month.

With Lehman having access to short-term funding at the Federal Reserve and having billions of dollars of assets at its disposal, a run on the bank is seen as unlikely.

But market difficulty and maintaining higher capital levels will likely constrain Lehman’s profitability, particularly given the cloudy outlook for many financial markets, analysts said.

Matt McCormick, an analyst at Bahl & Gaynor Investment Counsel in Cincinnati, said, “They’re going to have to find ways to assuage concerns there aren’t more write-downs coming.”

The fourth-largest U.S. investment bank has taken steps to shore up its capital base this year. The $6 billion of capital raised Monday follows a $4 billion convertible preferred share offering in the beginning of April and a $1.9 billion preferred share offering in February.

Both the New Jersey Division of Investment and former American International Group Chief Executive Maurice “Hank” Greenberg said they bought shares.

Chief Executive Richard Fuld said in a statement that he was “very disappointed” in the quarter’s results, which are set to be reported on June 16 and are still subject to adjustment.

FULD STILL STANDING

And although big losses have cost many bank chief executives their jobs, few have called for the ejection of Lehman CEO Dick Fuld, who has been with Lehman since 1969 and who told investors in April that “the worst is behind us” in financial markets.

Adam Compton, co-head of global financial stock research at RCM in San Francisco, said “up to now, Fuld hasn’t reported a big loss, which has kept the pressure off him.”

Lehman’s shares closed down 8.7 percent at $29.48, and fell as low as $28.01 during the session, reaching their lowest closing level since the collapse of Bear Stearns in mid-March.

The stock ended 2007 at $65.44, according to Reuters data. Its nearly 55 percent decline this year is more than double the decline in the overall investment bank and brokerage sector as measured by the Amex Securities Broker Dealer index.

Lehman’s difficulties contributed to a broad drop in financial stocks on Monday. The Amex Securities Broker Dealer index fell 2.3 percent, and Merrill Lynch & Co’s shares fell 3.2 percent.

Lehman sold 143 million shares, or $4 billion worth, at $28 a share on Monday. The bank also sold $2 billion of preferred stock that automatically converts to common shares in three years. The convertibles have an annual dividend of 8.75 percent, and each $1,000 security will convert to up to 35.7142 shares.

Lehman is not actively looking for more capital now, CFO Callan said. And although some analysts have speculated the investment bank would look to sell itself, many bankers and investors dismiss that as unlikely, in part because of the lack of obvious buyers.

CUTTING ASSETS, BOOSTING EQUITY

Investors and regulators are skittish about write-downs, and are forcing banks and brokers to boost their capital levels relative to their assets.

In the case of Lehman, it had about 25 times as many gross assets as equity at the end of the second quarter, compared to more than 30 times at the end of the first quarter. As equity rises, the relative amount of debt declines.

Lehman projected a second-quarter loss attributable to common shareholders of $2.87 billion, or $5.14 per share, for the quarter that ended May 31. That compared with the average analyst forecast for a loss of 38 cents, according to Reuters Estimates.

Net revenue is expected to be negative $668 million, compared with positive $5.51 billion a year earlier, Lehman said.

Moody’s Investors Service lowered its outlook on Lehman’s “A1” senior debt rating to “negative” from “stable.”

Additional reporting by Joseph A. Giannone and Kristina Cooke in New York, Jonathan Stempel in Bangalore, and Atul Prakash in London; Editing by Brian Moss, Maureen Bavdek, Gary Hill

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below