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Lehman slides again as survival strategy fails to convince

Posted by seumasach on September 12, 2008



By Sean Farrell, Financial Editor and Stephen Foley in New York


Friday, 12 September 2008

A desperate attempt by Lehman Brothers to retain its independence looked doomed last night as the US investment bank’s shares plunged yet again and the company began soliciting takeover bids.


Lehman stock fell by 42 per cent as its plan to raise cash with a string of asset sales was given a comprehensive thumbs-down. Instead, it was believed last night, executives’ attention had turned to talks with potential buyers of the whole company.

Bank of America was among the possible suitors believed to be discussing a transaction, and a bid from a consortium of financial institutions, who would then break up the company, was also seen as a possibility. It was unclear whether buyers would be willing to assume Lehman’s giant exposures to the commercial and residential property markets without government help. Officials from the Federal Reserve, which provided guarantees and loans to help smooth JPMorgan Chase’s rescue takeover of Bear Stearns in March, were on the scene following the progress of Lehman’s plans.

There was no suggestion Lehman was having trouble yesterday financing its day-to-day trading obligations, and therefore no immediate threat of losses by its trading partners and the wider financial system. But staff and other market players expressed little confidence the 158-year-old company could survive independently. The draining of confidence also caused the cost of default protection on Lehman bonds to soar to a record while yields on its debt rose to near-distressed levels. The US Treasury and the Securities and Exchange Commission said they were monitoring market events.

The latest share price collapse followed the bank’s announcement on Wednesday of a plan intended to draw a line under its troubles, which included spinning off real-estate assets and selling part of the investment management business. Equity analysts yesterday downgraded Lehman, partly on fears ratings agencies would cut ratings on the bank’s debt, increasing its funding costs.


Dick Fuld, the bank’s chief executive, has been keen to protect Lehman’s independence, but said on Wednesday the board would listen to offers and consider all options in the interests of shareholder value. The bank announced a $3.9bn (£2.2bn) third-quarter loss on Wednesday caused by losses on real estate-related assets. It brought the results forward by over a week after a 45 per cent share price fall the day before.

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