Tuesday, June 10, 2008

Lehman Expects a Quarterly Loss of $2.8 billion

Lehman Brothers reported on 9th June 2008 that it expects a quarterly loss of $2.8 billion and would raise $6 billion in capital to shore up its balance sheet. It signals that turmoil in the credit market is far from over.

It took the unusual step of disclosing its second-quarter results a week early in an effort to assuage investors' concerns.

Lehman's estimated loss of $2.8 billion, or $5.14 per share, for its second quarter, which ended March 31, compares with profit of $1.3 billion, or $2.21 per share, a year ago. This will mark the first quarterly loss since Lehman went public in 1994 and far exceeded analysts' estimates of several hundred million dollars in losses.

The losses came as the firm wrote down the value of assets on its books and lost money from its trading activities. Lehman also took a hit as its hedges -- steps taken to protect the firm from certain losses -- failed to work. Such hedges had previously blunted the blows to Lehman's bottom line.

"I am very disappointed in this quarter's results," Lehman's chairman and chief executive Richard S. Fuld Jr. said in a statement. "Notwithstanding the solid underlying performance of our client franchise, we had our first-ever quarterly loss as a public company."

Lehman is in the company of Merrill Lynch and Citigroup, which have sought billions in fresh capital as they suffered outsize losses in mortgage-related and other securities.

The firm said it had moved aggressively during the second quarter to strengthen its financial position, for instance by reducing exposure to residential and commercial mortgages and real estate investments by up to 20 percent. It also cut its exposure to loans for mergers and acquisitions by more than a third. Lehman said it had reduced its gross leverage to 25, down from 31.7 at the end of last year, meaning the firm is now borrowing $25 for every $1 of its own money.

CFO Erin Callan said Lehman does not plan to reduce leverage further and intends to use the new capital to take advantage of market opportunities in the future. Lehman reported that it is raising $4 billion through common stock, at $28 a share, and $2 billion in preferred shares that will be convertible into common stock.

Lehman plans to release the full details of its quarterly results next Monday.

No comments: