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Lehman Bros.' big loss stuns investors

June 10, 2008|Walter Hamilton | Times Staff Writer

Wall Street has been worried for weeks that Lehman Bros. Holdings Inc. was facing another hit from the credit crisis.

Turns out the market wasn't worried enough.

The securities firm pulled back the curtain on its fiscal second-quarter results Monday, and the numbers were worse than even the most bearish estimates.

Lehman said it expected to post a loss of $2.8 billion, or $5.14 a share, for the quarter ended May 31, far more than analysts' forecasts. The company also said it was raising $6 billion in fresh capital -- $2 billion more than projected.

The loss estimate and the looming dilution of existing shareholders' stakes from the capital injection sent investors crowding for the exits. The stock tumbled as much as 13% before closing at $29.48, down $2.81, or 8.7%. Lehman's numbers weighed on financial stocks in general, which had another bad day.

"Today's results were far worse than anyone had anticipated," Goldman Sachs & Co. analyst William Tanona wrote in a note to clients.

Lehman Chief Executive Richard Fuld Jr. acknowledged the obvious, calling the company's first-ever quarterly loss "very disappointing."

Lehman said the red ink stemmed from more write-downs of securities it holds and from trading losses.

The company tried to show that it had made some progress with its troubled investment portfolio. It cut its exposure to risky residential and commercial mortgages by as much as 20% in the quarter.

Lehman also said it boosted its liquidity -- basically, cash on hand to prevent a Bear Stearns-like run on the bank -- to $45 billion from $34 billion at the end of the first quarter.

But investors' concern is that Lehman had appeared to be weathering the credit crisis in its first quarter, only to divulge this latest round of write-downs. The company turned a profit of $489 million in its fiscal first quarter.

To bolster its balance sheet, Lehman said it was raising $4 billion by selling 143 million shares of common stock at $28 each, which will boost the firm's outstanding shares by 26%. It's also selling $2 billion of preferred shares that will pay an 8.75% annual dividend.


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