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Lehman Brothers will raise $6 billion of capital to cover $2.8 billion second-quarter loss

Lehman Brothers will raise $6 billion of capital to cover $2.8 billion second-quarter loss

Lehman Brothers Holdings Inc. on Monday said it will raise $6 billion in new capital to shore up its balance sheet after saying it expects to post an unexpectedly large second-quarter loss of nearly $3 billion.
Shares of the United States' fourth-largest investment bank fell more than 7 percent in premarket trading. The company's stock is down more than 50 percent so far this year on mounting concerns about its exposure to the mortgage market.
Credit rating agency Moody's lowered its outlook on the firm after Monday's announcements.
Lehman expects to lose $2.8 billion, or $5.14 per share, for the period ended May 31. This compares to a profit of $1.3 billion, or $2.21 per share, in the year-ago period.
This would be the first loss for Lehman Brothers since it was spun off from American Express Co. in 1994. Lehman becomes the latest financial institution to show continued pain from the global credit crisis. Analysts had expected the company to report a loss of just 22 cents per share for the period, according to Thomson Financial.
Richard Fuld, Lehman's chief executive, said he was "very disappointed" in the quarterly results. However, he believes the additional capital _ raised through an offering to yet unnamed investors _ will help keep the company whole amid continued market turmoil.
"Notwithstanding the solid underlying performance of our client franchise, we had our first-ever quarterly loss as a public company," Fuld said in a statement.
Lehman Brothers, which plans to release full details of its quarterly results on June 16, said revenue during the quarter suffered from "negative mark to market adjustments and principal trading losses." Like other investment banks, Lehman has been forced to write down the value of investments in mortgage-backed securities that have suffered in the past year.
The company also said it lost money during the quarter because of hedging losses. Lehman Chief Financial Officer Erin Callan was expected to provide more details about the results during a conference call later Monday.
There had been market speculation that Lehman Brothers was seeking outside investors to offset losses during the quarter and fortify its balance sheet. Some analysts felt the firm's balance sheet was the closest of all the Wall Street firms to Bear Stearns, which narrowly avoided bankruptcy in March through its sale to JPMorgan Chase & Co.
Lehman is expected to raise capital through mostly American investors through $4 billion of new common shares and $2 billion of 3-year mandatory convertible preferred stock. There have been reports that the New Jersey Division of Investment _ which manages the state's $80 billion of pension funds _ will be among the investors.
While analysts appeared to be satisfied by the fresh capital, there were concerns about how steep Lehman's losses were.
Moody's Investors Service changed its rating outlook on the company to "negative" from "stable" after Monday's announcements amid concerns about risk management.
The ratings agency said any additional firm-wide losses in coming quarters "would raise serious concerns about the effectiveness of Lehman's risk management and may create additional market unease about the firm, potentially weakening its franchise."
Its shares fell $2.44, or 7.6 percent, to $29.85 in premarket trading.


Updated : 2021-05-17 03:51 GMT+08:00