Lehman expected to follow Merrill's route
Lehman Brothers is expected to follow in Merrill Lynch's footsteps and sell a lot of risky assets at a loss. But shedding the assets may create another headache for Lehman - the need to raise large amounts of new capital, including common equity.
Commodities were best performing asset in 2007Any capital raise would be painful for Lehman and its shareholders, given that the company just raised $6 billion (3 billion pounds) in June and trades at a significant discount to its book value, or the net accounting value of its assets.
But Lehman, the fourth-largest U.S. investment bank, may have little choice as it wrestles with roughly $65 billion in mortgage-related assets, particularly after Merrill Lynch agreed to shed $30.6 billion in toxic assets at a fire-sale price of 22 cents in the dollar, analysts said.
"Lehman's caught between a rock and a hard place. They're getting more and more pressure from regulators and investors to add reserves or mark these things down," said David Hendler, an analyst at independent research firm CreditSights in New York.
"In normal times, they could wait it out, but the market wants it done now," Hendler added.
The New York Post reported on Friday that Lehman was talking to potential buyers about selling $30 billion in assets. CNBC television reported Friday that Lehman was in talks with BlackRock Inc to sell mortgage securities and other assets. Both Lehman and BlackRock declined to comment.
Lehman's chief financial officer told Merrill analyst Guy Moszkowski recently that the investment bank was willing to sell assets at a loss if the deal materially reduced risk, the analyst said in a report.
Lehman had roughly $65 billion in mortgage and real estate-related assets on its balance sheet as of May 31.
Selling at a loss seems increasingly likely after the Merrill deal last week. Lehman's assets may be of much higher quality, but Merrill's low sale price for mortgage-linked securities implies that many banks' assets connected to mortgages may be marked down further.
Lehman wouldn't have to sell assets at much of a loss before it had to raise capital.
- 1 RBS gets Chinese approval for Suzhou stake
- 2 June retail sales fall less than expected
- 3 Citi ends talks with Wells Fargo on Wachovia
- 4 Coordinated rate cuts spark Asia stocks rally
- 5 Dollar rally unstoppable
- 6 UK and Iceland in row over bank deposits
- 7 Iceland regulator takes control of Kaupthing bank
- 1 Dollar rally unstoppable
- 2 Markets nervous on return of short sellers
- 3 Lehman demise could end speculative raid on taxpayers
- 4 AIG in focus as financial meltdown spreads
- 5 Goldman and Morgan Stanley face biggest test
- 6 Lloyds says no comment on report of HBOS deal renegotiation
- 7 Rate cut to be passed on to savers
- 1 June retail sales fall less than expected
- 2 Pressure on G7 to act on crisis as Asia stocks plunge
- 3 Darling appeals for new ideas on crisis
- 4 Markets nervous on return of short sellers
- 5 Dollar rally unstoppable
- 6 Rate cuts alone won't fix financial problems
- 7 Europe's summit no cure for bank crisis
|
|
