Lehman Bros. has a plan to raise cash, head off trouble
— -- Lehman Bros. unveiled on Wednesday a broad plan to raise cash after suffering sizable investment losses, yet another sign that the credit and housing crunch dogs the financial system.
The nation's No. 4 investment bank says it will reduce its residential mortgage holdings, spin off commercial real estate to shareholders, sell 55% of its investment management unit and cut its dividend by 93% in an effort to boost its financial health.
The firm says it expects to post a $3.9 billion net loss for its third quarter, which ended in August, following a $2.8 billion loss in the second quarter.
The deep losses show the severity of the credit crunch, says Michelle Clayman, managing partner of New Amsterdam Partners. "The biggest thing is the tightness of credit," she says. "That will affect the markets and economy for a while."
Investors were unimpressed. Lehman shares sank 54 cents to $7.25. They are off 89% this year.
Lehman's plan left some analysts wondering whether the firm can:
•Quickly reduce its exposure to real estate. Lehman cut residential mortgage holdings by 31% in the third quarter and is in talks with BlackRock Financial to sell $4 billion in British residential mortgages. Reducing housing investments is wise, as the market may not recover until the second half of 2009, says Graham Tanaka, portfolio manager at Tanaka Growth, which owns Lehman shares.
Meanwhile, Lehman plans to spin off up to $30 billion in commercial real estate in a separate company called REI Global in early 2009. By spinning off the unit, Lehman gets the exposure off its books without settling for fire-sale prices, Tanaka says.
•Raise additional capital. The plan to sell 55% of its investment management business is a fast way to raise as much as $3 billion.
Lehman did not say who might want the business, which includes Neuberger Berman. But private-equity firm Blackstone is among the bidders, says Sanford C. Bernstein's Brad Hintz, based on talks with retired Neuberger Berman executives.
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