Lehman may raise $3-4 billion capital: Financial News - Yahoo! Finance


Looks like another write down coming for lehman brothers.

Watch for the stock to open much lower tommorow!


Reuters
Lehman may raise $3-4 billion capital
Tuesday June 3, 2:31 am ET


(Reuters) - Lehman Brothers Holdings Inc (NYSE:LEH - News) may raise $3-4 billion in fresh capital, suggesting the investment bank will post its first quarterly loss since going public, the Wall Street Journal said on Tuesday, citing sources familiar with the matter.
New capital may be raised by issuing common shares, diluting existing shareholders, and would probably be announced in conjunction with its quarterly results due the week of June 16, the newspaper said.

Lehman's market value is about $18.7 billion, based on Monday's closing stock price of $33.83, Reuters data shows.

The report sparked selling in the U.S. dollar and weighed on Asian stocks, while boosting demand for safe-haven government bonds such as U.S. Treasuries.

"The market is very cautious about developments with troubled financial firms," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJTrust Bank in Japan.

According to the newspaper, Lehman was hurt by hedges used to offset losses in real estate and other securities. Second-quarter losses from writedowns on assets and ineffective hedges are likely to top $2 billion, the newspaper said.

Several analysts expect the bank to post a loss in the second quarter, according to Reuters Estimates. Lehman is the smallest of Wall Street's four major investment banks, following the purchase of Bear Stearns by JPMorgan Chase & Co (NYSE:JPM - News).

Lehman did not immediately return calls for comment. Its shares closed down 8.1 percent on Monday at $33.83. The shares have nearly halved this year.

CEO CONFIDENT IN APRIL

Financial institutions globally have already written down more than $350 billion in losses related to risky U.S. subprime mortgages.

Standard & Poor's on Monday cut its credit ratings for Lehman, Merrill Lynch & Co (NYSE:MER - News) and Morgan Stanley (NYSE:MS - News), saying that writedowns "may continue to depress earnings."

In April, Lehman Chief Executive Richard Fuld had said "the worst is behind us," in light of improved client trading activity and investor sentiment, though the U.S. economy would take "a number of quarters to regain its previous strength."

At the time, Fuld had said the bank was planning to raise equity and reduce assets.

Lehman sold $4 billion of convertible preferred shares at the beginning of April. Early last month, Lehman sold $2 billion of 30-year bonds.

CUTTING COSTS

Raising new capital may help Lehman reassure investors who have periodically in recent months questioned whether the investment bank would suffer a fate similar to that of Bear, which folded under the weight of the global credit crisis.

Since the Federal Reserve began allowing investment banks to borrow directly from it, these fears have lessened. Lehman has accessed overnight Fed financing several times.

Last month, David Einhorn of Greenlight Capital Inc, which invests more than $6 billion, told investors that Lehman should raise large amounts of capital because it has not taken enough write-offs for bad assets. Einhorn said he has sold Lehman's shares short, meaning he would profit if the stock drops.

Lehman's woes have forced it to reduce costs.

Last month, the company decided to cut around 1,300 jobs, or nearly 5 percent of its workforce, a person briefed on the matter said. The cuts are in addition to layoffs of more than 5,000 people since mid-2007.

Wall Street companies are reducing staffing levels as the broadening credit crunch cuts into its businesses, including security underwriting and mergers advice.

UBS AG (VTX:UBSN.VX - News) said in May it would slash 5,500 jobs, reducing its work force by a further 7 percent.

(Reporting by Varsha Tickoo and Tenzin Pema in Bangalore; Additional reporting by Satomi Noguchi in Tokyo)

LEH tanked about 10% today.

Word on the street being they are accessing the fed discount rate window although an email from the chairman said they have more liquid cash in hand .. 40billion worth than the last quarter!

I noticed some call buying after that was announced around mid-day!

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