As the end of the third-quarter approaches, the speculation has begun about the level of losses at various Wall Street firms. Lehman Brothers, of course, is at the center of the talk. This morning a report in the Wall Street Journal suggests that Lehman may face a fiscal third-quarter loss of $1.8 billion. That would take Lehman’s losses since March up to $4.5 billion, or more than it made in profits for all of 2007.
Losses of this size could force Lehman to follow Merrill Lynch’s lead by selling off a huge amount of its assets at once, most likely at a steep discount. The ongoing losses coupled with reassurances about the strength of the balance sheet has badly damaged Lehman’s credibility. Further capital raising will be difficult for Lehman in an atmosphere of distrust and shareholders already angered over dilution from earlier rounds of capital raising.
Lehman has been benefiting from widespread support from institutional investors. Twenty four of Lehman’s 30 largest shareholdersncreased their holdings in the second quarter, according to Securities and Exchange Commissions filings last week. Large investors who increased their stakes included Axa, Norges Bank Investment Management, State Street, Credit Suisse, Bank of New York Mellon, Janus Capital Management , George Soros, T Rowe Price Group and Wellington Management. PIMCO, Blackrock and SAC Capital have all publicly rallied support for Lehman. Given the decline in Lehman’s stock price, nearly all of these firms have lost money by betting on Lehman.
But not everyone is jumping on the save Lehman bandwagon. Fidelity Investments, the largest mutual fund company, reduced its stake by 17%.
Lehman Faces Another Loss, Adding Salt To Its Wounds [Wall Street Journal]
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so they will be raising casheesh for the sole purposes of paying bonuses? sounds like a good business model! (if you like ponzi schemes)
You go first.
No time to read the WSJ article but isnt LEH assuming a lot of value in their Neuberger Berman franchise? Could be sold for big bucks to shore up capital, like ML selling Bloomberg stake.
Ok, great article I guess. Where the hell is Bess????
I’m bored, when is LEH going to fail already?
Why are these big players buying up Lehman’s equity?
Except for the hedgies, these are long only equity investors, which are typically measured not on absolute performance but rather performance vs. an appropriate index. So they have either chosen to overweight (BNY, Janus, T Rowe, State Street) or underweight (Fidelity) LEH in hopes of generating alpha (performance vs. the index). Is that so mysterious?
6 – Obviously they think there is long term franchise value at these levels not like the retail dipshits.
#9 – “Franchise value” yes. The question is whether Lehman will make “long-term” in current form without going through an equity bonfire. Price is simply the intersection of reward and perceived risk. Personally – with all the murk it’s tough to have conviction or form any reliable perception.
At some point the world is going to again get a lesson in what the equity risk premium is and what it means to sit at the back of the capital structure. Certainly you get the upside but the residual claim on downside is what most people seem to overlook after the last 30 years. The “buy-on-dips” strategy has yet to face a challenge as real as this one but in any case is due to be burned.