Lehman Bros: Too Big To Fail?
The fourth-largest investment bank in the US, Lehman Brothers, said Wednesday that it expected a loss of $3.9 billion in the third quarter after $5.6 billion in write-downs.
This follows on from the firms reported $2.8bn second quarter loss, its first negative quarterly result since its demerger from American Express.
Lehman's stock lost nearly half its value on Tuesday as investors feared it was running out of options to raise capital and shore up its ailing balance sheet.
The sub-prime mortgage market crisis that began unfolding more than a year ago has taken its toll on the bank's share price, which has steadily fallen from $82 in the summer of 2007 to below $8 today.
Now fears are growing that the bank will be unable to raise sufficient capital to ride out the storm, following the news that South Korea's state-run Korea Development Bank has walked away from negotiations to buy a stake in it.
The investment bank also said that it would spin off the majority of its remaining commercial real estate holdings into a new public company. And it confirmed plans to sell a majority of its investment management division in a move that it expects to generate $3 billion.
Lehman said Wednesday that it hoped to complete the spin-off of around $32 billion in commercial mortgage assets by early next year.
Analysts were immediately sceptical about how Lehman would assign assets to the new company. The planned spinoff reflected the poor state of the commercial mortgage markets, and that in the current market these were assets nobody wants to buy, they said.
Staff with Lehman have reason to fear for their jobs. The firm, which employs about 26,000 people, has already made more than 6,000 people redundant in the past 12 months.
This follows on from the firms reported $2.8bn second quarter loss, its first negative quarterly result since its demerger from American Express.
Lehman's stock lost nearly half its value on Tuesday as investors feared it was running out of options to raise capital and shore up its ailing balance sheet.
The sub-prime mortgage market crisis that began unfolding more than a year ago has taken its toll on the bank's share price, which has steadily fallen from $82 in the summer of 2007 to below $8 today.
Now fears are growing that the bank will be unable to raise sufficient capital to ride out the storm, following the news that South Korea's state-run Korea Development Bank has walked away from negotiations to buy a stake in it.
The investment bank also said that it would spin off the majority of its remaining commercial real estate holdings into a new public company. And it confirmed plans to sell a majority of its investment management division in a move that it expects to generate $3 billion.
Lehman said Wednesday that it hoped to complete the spin-off of around $32 billion in commercial mortgage assets by early next year.
Analysts were immediately sceptical about how Lehman would assign assets to the new company. The planned spinoff reflected the poor state of the commercial mortgage markets, and that in the current market these were assets nobody wants to buy, they said.
Staff with Lehman have reason to fear for their jobs. The firm, which employs about 26,000 people, has already made more than 6,000 people redundant in the past 12 months.
