Bloomberg is reporting that Lehman Brothers may take up to $4 billion in losses as a result of marking down $61 billion worth of mortgage-related assets. The losses would be announced in their 3rd quarter earnings. Lehman was the biggest underwriter of mortgage assets prior to the meltdown. They continue to be on the watch list as analysts wonder aloud if they can limit their exposure fast enough before suffering the fate of Bear Stearns.
I think we’re due to lose one more big I-Bank – and Lehman is as good a better as any.
From Bloomberg:
Lehman Brothers Holdings Inc. may write down about $4 billion in credit-related investments and other assets when it reports fiscal third-quarter earnings, JPMorgan Chase & Co. analysts said.
“The credit environment continues to be difficult,” New York-based analysts led by Kenneth Worthington wrote in a report yesterday. “It will be another difficult quarter for Lehman.”
Lehman may mark down some of its $61 billion of mortgage and other asset-backed securities after benchmark residential and commercial mortgage-related indexes declined by as much as 20 percent, the analysts wrote. The company may have already been selling some commercial mortgage assets, they added.
Lehman, the largest underwriter of mortgage bonds before the subprime market collapsed, has slumped 77 percent in New York trading as it struggles to pare its debt holdings. The bank has reported writedowns and credit losses of $8.2 billion in the past 12 months, according to data compiled by Bloomberg.
The information came from a current Aurora employee, and anonymous may not stand up against any wrath Lehman decides to deliver. I was severed earlier this year from Aurora/Lehman. Retail laid off 49 employees, which is essentially the whole staff.
Lehman Brothers, the ailing Wall Street bank, plans to lay off as many as 1,500 employees, or nearly 6 percent of its work force, before it announces third-quarter results on Sept. 15, a person briefed on the plans said Thursday.
Lehman has already laid off 6,000 people since June 2007, mostly in its mortgage origination and securitization businesses. It was not immediately clear what divisions would bear the brunt of the new cuts, but virtually every Wall Street business is struggling, and investment bankers and traders at Lehman are anticipating cuts.
A Lehman spokesman declined to comment.
The bank is scrambling to piece together a plan to shore up its finances before it announces its third-quarter results. Those results are expected to be grim, and investors expect the bank to take dramatic steps before it announces write-downs that analysts say could be as much as $4 billion and an estimated loss for the quarter of $3.30 a share.
At the heart of Lehman’s woes is a balance sheet bulked up with assets that are steadily losing value, including about $61 billion in mortgages and asset-backed securities.
Earlier in the week there were reports Lehman was looking into Forming a New Company:
Lehman Brothers Holdings Inc. may set up a company funded by outside investors to buy some of its mortgage assets, aiming to dispel concern the firm faces crippling losses, people familiar with the discussions said.
Investors in the new venture would also manage the holdings, which are linked to commercial real estate, the people said, declining to be identified because the proposal hasn’t been made public and no decision has been made about how to proceed. The New York-based firm had about $40 billion in commercial-mortgage assets as of May.
Our read: Lehman wants to move its toxic real estate holdings into a minority-owned off-balance-sheet vehicle to offload the troubles. Would be nice, wouldn’t it? Except, to do such a deal, they’ll probably have to retain the lion’s share of the loss exposure, unless they’re lucky enough to tap into a shrinking pool of greater fools.
My take: Prepping for the announcement of a sale – new management will not have to be the bad guys OR they can’t get anyone to bite and they are desperately trying to shore up the balance sheet prior to their upcoming earnings release.
I want the former to be true, but given that the rumors of an imminent sale last week have subsided this week, I am getting the feeling it may be the latter.
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