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Lehman Facing Talk Of Third Quarter Loss

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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]