Lehman suffers nearly $4 billion loss

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Lehman suffers nearly $4 billion loss

Wall Street firm reveals major restructuring: spin-off of commercial real estate assets and plan to sell stake in investment management division.

By David Ellis, CNNMoney.com staff writer
Last Updated: September 10, 2008: 8:16 AM EDT


NEW YORK (CNNMoney.com) -- Lehman Brothers booked a nearly $4 billion quarterly loss Wednesday and announced a series of drastic steps aimed at reviving the beleaguered firm.

The firm said it would spin-off part of its commercial real estate assets, sell a majority stake of its investment management division and slash its annual dividend.

Following a wild market session Tuesday in which shares plunged 45% to their lowest levels in nearly a decade, Lehman (LEH, Fortune 500) announced a $3.9 billion fiscal third-quarter loss, or $5.92 a share Wednesday morning. It was Lehman's biggest quarterly loss since the firm went public in 1994, exceeding a $2.8 billion loss announced in June.

"This is an extraordinary time for our industry, and one of the toughest periods in the Firm's history. The strategic initiatives we have announced today reflect our determination to fundamentally reposition Lehman

In last year's third quarter, Lehman reported a profit of $870 million, or $1.54 a share.

Analysts were expecting the firm to report a $1.99 billion loss, or $3.35 a share, according to Thomson Reuters. The company had originally planned to release its results on Sept. 18.

Shares of Lehman fell about 6% in pre-market trading following the announcement.

The company's stock has plunged nearly 88% so far this year due to concerns about its ability to raise much needed capital.

Lehman also said it would spin off the majority of the company's commercial real estate assets into a new separate public company and announced its intention to sell a majority interest in its investment management division, which includes the profitable money manager Neuberger Berman.

The company, in an effort to save $450 million, also said it planned to reduce its annual dividend to 5 cents per share from 68 cents.

Shares tumbled Tuesday morning following a report by Dow Jones that indicated talks between Lehman and Korea Development Bank had ended. It had been widely speculated in recent weeks that the state-run KDB was interested in buying a stake in Lehman.

The stock fell even further Tuesday after credit ratings agency Standard & Poor's said it was placing Lehman on its CreditWatch list with negative implications, suggesting that S&P may cut its rating on Lehman's debt.

S&P analysts Scott Sprinzen and Tanya Azarchs wrote in a research note that they were concerned by "heightened uncertainty about Lehman's ability to raise additional capital, based on the precipitous decline in its share price in recent days."
Investors fear a Bear Stearns repeat

The fate of Lehman Brothers has been the subject of much market discussion in recent months following the near collapse of Bear Stearns, which was subsequently sold to JPMorgan Chase (JPM, Fortune 500) at a fire sale price.

Analysts have also been busy slashing third-quarter earnings estimates for Lehman, as well as Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), due to sluggish investment banking activity and weakness in stock markets around the globe.

But Lehman's problems have proven acute than its crosstown rivals. Hit hard by bad investments in the U.S. mortgage market, the investment bank has suffered billions of dollars in writedowns and has been forced to raise billion of dollars in capital.

In June, following the company's first loss, Lehman announced plans to raise $6 billion in capital by selling stock.

At that time, investors were not only questioning the company's accounting but speculating that Lehman may have to sell part or even all of itself to another financial firm.

Speculation about a break-up of Lehman persisted in the months that followed, as analysts bet that the company would shed its profitable Neuberger Berman money management unit to raise cash.

Other large global financial institutions have also been said to be eyeing an investment in the U.S. firm, including Tokyo Mitsubishi Bank as well as a group of investors led by the British bank HSBC (HBC), according to recent news reports.

Lehman Chief Executive Richard Fuld has faced increasing pressure to take action amid all the uncertainty about the firm's future. So far this year, there have been a handful of casualties in Lehman's top executive ranks.

In June, CFO Erin Callan and Chief Operating Officer Joseph Gregory were replaced. Callan eventually left Lehman for a job at Credit Suisse while Gregory remained at Lehman in a different position. To top of page

Source: http://money.cnn.com/2008/09/10/news/companies/lehman/?postversion=2008091008