Shares of Lehman Brothers (LEH.N) plunged 13.6 percent on Wednesday, bringing their total loss in the past four days to more than 25 percent, on concerns about the potential for further write-downs and investors' declining confidence in the investment bank's management.
The stock's latest drop followed a newspaper report that Lehman could seek more capital after raising $6 billion on Monday, and a downgrade by a prominent analyst. Shares of the fourth-largest investment bank fell to $23.75, their lowest close since October 2002.
The Financial Times said on Wednesday that Lehman had sought capital from Korean financial institutions, and may still enter a deal with them later this year. Lehman said on Monday it expected to post a roughly $2.8 billion quarterly loss next week.
"They diluted the shareholders that much, and now they may need more capital? There's a real crisis of confidence in management here," said Bill Smith, chief executive officer of Smith Asset Management, which sold its Lehman shares at the open Wednesday morning.
A spokesman for Lehman declined to comment.
Credit markets do not seem as concerned about Lehman, but some investors have been preparing for steep drops in the bank's shares. David Einhorn, whose Greenlight Capital hedge fund is shorting Lehman shares, has repeatedly accused the investment bank of understating the extent of its losses.
Merrill Lynch analyst Guy Moszkowski cut Lehman's ratings to "neutral" from "buy" on Wednesday afternoon, and said it believes Lehman is trying to value assets appropriately, but there still may be more write-downs coming for mortgage and real-estate assets.
"Real-estate assets and mortgage-payment delinquencies remain under intense pressure," Moszkowski wrote in his note, in which he cut Lehman's share price target to $28 from $36.
Lehman has an estimated $60 billion of real-estate-related assets on its balance sheet, the analyst said. The downgrade came just a week after Merrill had upgraded Lehman.
OTHERS LESS CONCERNED
In the credit derivatives market, the cost of protecting Lehman's debt against default is about two-thirds its level in mid-March, when Bear Stearns suffered a run on the bank.
The relatively low price of insuring Lehman's debt implies that demand from banks and clients to hedge their credit exposure to Lehman is hardly outsized.
Over the last week, more than a dozen clients, dealers and banks told Reuters they were trading normally with Lehman, but two funds said they had reduced their exposure.
Investment banks are much less likely to crash now that they can borrow funds from the U.S. Federal Reserve, an option unavailable to Bear Stearns, analysts said.
Larry Fink, chief executive of BlackRock Inc (BLK.N), the biggest publicly traded U.S. money management firm, told CNBC on Wednesday, "Lehman is not a Bear Stearns situation." BlackRock bought Lehman shares earlier this week.
"Lehman Brothers is adequately structured in terms of avoiding a liquidity crisis. That was what the Bear Stearns problem was," Fink said.
Lehman's shares dropped amid a broader decline in financial stocks, but Lehman's shares suffered the biggest decline among the top U.S. investment banks.
That's in part because of questions about the company's management, said Anton Schutz, a portfolio manager at Mendon Capital, which owns Lehman shares. "Investors were really disappointed on Monday," he said.
Goldman Sachs (GS.N) shares slipped 2.9 percent to $162.40, and Merrill Lynch & Co Inc (MER.N) fell 6.6 percent to $35.46.
Lehman is taking steps to scale down its risk. It decreased assets by about $130 billion in the second quarter, and has raised $10 billion of common equity and equity-linked capital in recent months. Lehman's holding company has about $100 billion of cash and assets it could easily sell or finance.
Brad Hintz, analyst at Sanford C. Bernstein, said in a note to investors on Tuesday that Lehman was taking the steps it needs to make its balance sheet "bulletproof," but Bernstein believes Lehman faces significant challenges in the future.
The cost of protecting Lehman's debt against default in the credit derivatives market rose about 30 basis points on Wednesday to 283 basis points, or $283,000 a year for five years for every $10 million of debt protected, according to Markit. That figure was about 465 basis points in mid-March.
Source: internet
No comments:
Post a Comment