Lehman Brothers Holdings Inc may need to raise capital as some analysts estimate the Wall Street firm will report its first quarterly loss since going public in 1994.
The fourth-biggest US securities firm probably will post a second-quarter loss of US$0.50 to US$0.75 a share, analysts at Oppenheimer & Co and Bank of America Corp said.
New York-based Lehman holds “very large, illiquid” assets and “we can’t rule out equity issuance” to replenish the balance sheet, analysts at Merrill Lynch & Co said in a report on Monday.
Lehman may seek as much as US$4 billion by selling common stock, the Wall Street Journal said yesterday, citing unidentified people with knowledge of the matter.
The company has raised US$6 billion since February amid asset writedowns and losses from the collapse of the US subprime mortgage market. Lehman has dropped 48 percent in New York trading this year, the worst performance on the 11-member Amex Securities Broker/Dealer Index.
“This is adding to the perception that there’s a need for more write-offs and capital raisings,” said Greg Bundy, executive chairman of merger advisory firm InterFinancial Ltd in Sydney and a former head of Merrill’s Australian unit.
Lehman fell 8.1 percent on Monday to US$33.83 in New York Stock Exchange composite trading.
Chief executive officer Richard Fuld said in April at the annual shareholders meeting that “the worst is behind us” in the credit-market contraction that has cost the world’s biggest banks and brokerages more than US$250 billion.
Chief financial officer Erin Callan said last month at an industry conference in New York that the firm’s so-called leverage ratio declined to 27 percent from almost 32 percent at the end of the first quarter after the capital raisings.
The company needs more capital because of declines in the credit markets, David Einhorn, a hedge fund manager who’s betting Lehman shares will fall, said in an interview last week.
Standard & Poor’s downgraded the credit ratings of Lehman and bigger New York-based competitors Morgan Stanley and Merrill on Monday, saying they may disclose more writedowns for devalued assets. Lehman’s credit rating was cut to A from A+, as was Merrill’s.
Investors have “serious concerns that the subprime crisis isn’t over at all,” said Fumiyuki Nakanishi, an equity strategist at Sumitomo Mitsui Financial Group Inc in Tokyo.
The S&P downgrades may make it harder for the banks to sell derivatives such as credit-default swaps that are tied to bonds or loans, said Brad Hintz, an analyst at Sanford C. Bernstein in New York, who has a “market perform” rating on Lehman.
“Lehman needs to reduce its leverage ratios to reflect the new realities of the fixed-income marketplace,” Hintz wrote in a report to clients yesterday.
“This will not be good for the firm’s revenue base,” he wrote.
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