Lehman shares fall after report of failed sale
Reuters, 08.21.08
NEW YORK (Reuters) - Lehman Brothers shares fell 4.3 percent on Thursday after a newspaper reported the bank had tried to sell a stake of itself to South Korean or Chinese parties and failed, and a Citigroup analyst reduced his estimates for the sector.
Lehman's share decline came amid a broader drop in financial stocks after oil prices rose and investors' concerns about write-downs mounted.
Citigroup analyst Prashant Bhatia cut his estimate for Lehman's third-quarter results to a loss of $3.25 per share from his prior estimate of a loss of 41 cents per share. He said he expects $2.9 billion of asset-related write-downs for the bank.
Bhatia also cut his estimates for Goldman Sachs Group Inc , Merrill Lynch & Co Inc, and Morgan Stanley , citing expected losses on hard-to-sell assets and lower client trading volumes.
Lehman Brothers, the fourth-largest U.S. investment bank, has taken a roughly $7 billion hit from credit-related write-downs and losses since the start of the global crisis. The bank's shares trade at less than half their book value of about $32.95, signaling that investors see more write-downs coming.
People close to the matter said this week that Lehman is considering selling at least a part of its asset management business.
The Financial Times said late Wednesday that Lehman's talks with China's biggest brokerage, CITIC Securities, and state-owned Korea Development Bank (KDB) on a sale of up to half its shares had failed. The newspaper cited people in New York familiar with the potential buyers.
CITIC told Reuters it had held no formal talks about buying a stake in Lehman, while Lehman and KDB spokespersons declined to comment.
A KDB official, who declined to be identified, said the South Korean bank was scaling back its overseas assets and staff to reduce exposure to volatile foreign markets.
Multiple press reports in recent weeks have touched on parties Lehman may be approaching to raise capital and offload assets.
BHATIA SAYS "BUY"
Citi's Bhatia cut his forecast for Lehman, but rates the bank a "buy." Bhatia said selling the asset management business or raising equity may be under consideration, but he views them as relatively unlikely actions over the coming months.
"Even under the potentially more stringent rating-agency guidelines related to the amount of preferred securities in the capital mix, we anticipate that Lehman can absorb over $3 billion of after-tax losses without adding more common equity," he said.
Lehman's shares were at $13.14 at midday Thursday after closing Wednesday in New York at $13.73, valuing the bank at around $9 billion. The shares have plunged more than 80 percent since early 2007.
Merrill Lynch shares were down 2.9 percent at $23.70, while Citigroup fell 1.3 percent.
The Wall Street Journal reported the Federal Reserve acted on rumors last month and called Credit Suisse Group to see whether it had pulled a credit line from the bank.
Credit Suisse told Federal Reserve officials that it had no intention of pulling the line of credit, the paper cited people familiar with the matter as saying.
Fed officials contacted Credit Suisse last month, but it is unclear whether the move occurred before or after the Securities and Exchange Commission subpoenaed dozens of hedge funds and financial firms about four Lehman-related rumors, the paper said.
Lehman Brothers and Credit Suisse spokespersons in London declined to comment.