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Lehman Brothers in talks over sale of $40bn real estate assets

Posted by seumasach on August 19, 2008

Suzy Jagger

The Times

16th August, 2008

See also: Lehman and the Liars

Lehman Brothers, the Wall Street investment bank, is understood to be in talks to sell its entire $40 billion (£21.5 billion) real estate portfolio in a move to stem losses incurred during one of the worst property slumps since the Great Depression.

crisis erupted just over a year ago – is believed to be prepared to take a $5 billion hit on the sale of the assets and securities.

Lehman is believed to have begun sale negotiations with firms such as Blackstone, the private equity group, and BlackRock, the fund manager.

However, it is thought that Lehman is optimistic about the price it might secure for the portfolio even though both residential and commercial real estate assets have collapsed in value. Some mortgage-backed securities – which are collateralised by residential real estate – are so untradeable, they are effectively worthless.

Lehman Brothers in New York did not return calls last night.

It is thought that the bank, which is headed by Richard Fuld, is considering whether to hive off its real estate portfolio and float it in the event that it fails to sell the assets to buyers such as private equity or fund managers.

It is also believed that Mr Fuld is prepared to sell the assets off as a whole or piecemeal to the highest bidder.

Such a deal would echo the transaction made by Merrill Lynch, which sold the bulk of its portfolio of collateralised debt obligations this month.

The last 12 months have been tough for Lehman Brothers. After the collapse of Bear Stearns – then Wall Street’s smallest investment bank – capital markets speculated whether Lehman, which is heavily exposed to the US housing market, would be next.

Shares in the bank sank rapidly this year on rumours that it was suffering a problem with liquidity. Those alleged problems were swiftly denied. Last month there was also speculation on Wall Street that Lehman was considering a range of options to put a floor under its plummeting share price, including a possible strategic alliance.

Lehman Brothers announced plans in June to raise $6 billion by issuing new shares as it unveiled a larger-than-expected $2.8 billion loss for its second quarter. The results were dragged down by about $4 billion of writedowns on Lehman’s mortgage and private equity-related investments, and were well below the loss of $300 million to $1 billion that most analysts had predicted. They represented the first loss since Lehman went public in 1994 and compared with a $1.26 billion profit the year before.

Worryingly, Lehman said that many of the British mortgage-related assets on its books had become virtually impossible to value. This is in marked contrast with its first quarter, when the assets had been fairly easy to value, according to Erin Callan, Lehman’s then chief financial officer.

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