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Lehman Brothers Holdings Inc. (NYSE: LEH) is poised to lose $2.6 billion and it's trying to dump $40 billion worth of real estate from its books. The Wall Street Journal reports that Guy Moszkowski, a Merrill Lynch & Co., Inc. (NYSE: MER) analyst thinks Lehman could lose $2.6 billion -- while others expect a mere $1.8 billion loss. Lehman normally reports in mid-September but it may pre-announce earnings this month.
I always find it interesting when analysts -- particularly those who work for banks with their own problems -- offer bearish earnings outlooks for their competitors. But I have met Moszkowski and I found him to be both very smart and a straight shooter. The Journal reports that he "more than doubled his loss projection to $2.6 billion and predicts that Lehman will take a $4.5 billion hit from write-downs." It quotes him as saying that an additional markdown up to 20% related to Lehman's remaining $64 billion in mortgage and commercial real-estate exposure "seems like a lot but can't be ruled out." If that were to happen, Lehman might need to raise more capital.
Speaking of that real estate, FT.com reports that Lehman is in talks to dump $40 billion worth of commercial real estate assets and securities. FT.com reports that there is a wide gap in what the potential buyers -- Blackstone Group (NYSE: BX) and BlackRock (NYSE: BLK) -- and Lehman think those assets are worth. It also reports that the assets in question consist of mortgages and mortgage-backed securities that Lehman valued at $29.4 billion at the end of May and real estate assets then valued at $10.4 billion.
Lehman's stock is down 72% in the last year. The assets it's hoping to sell represent 357% and 152% of its market capitalization and shareholders' equity, respectively. I find it hard to see this deal going through at a good price for Lehman.
With $8 billion in writedowns and losses and $13 billion in capital raised, the race for survival goes on between capital raising and real-estate write-downs.
I am not confident that Lehman can win that race.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
8-18-2008 @ 3:30PM
bill said...
when will it all end? The bushe boys has done a real number on us this trip. A war that should not have occurred, depleting the social security trust fund, squandering the surplus, and borrowing from other countries. If this is supply side economics, it sucks, why can we not recall an elected official that is lousy? Bush is incompetent.
8-18-2008 @ 7:55PM
veronica fritz said...
I agree with Bill. Bush is totally incompetent. The economy is bad enough already.
Commercial Real Estate is doing will with investments.
8-21-2008 @ 5:56PM
ATHELSTAN said...
While the beat goes on and we discover that American "financial services" is built upon a sea of worthless paper, what happens to all the wealthy investors remaining in countless hedge funds? Thinking that the worst of the liquidity/credit crisis is "behind us" as we are told endlessly by guests on CNBC, Bloomberg, and Fox News.
These guests should have a logo showing a poor fellow who keeps backing up into a massive meat grinder as he tries to avoid financial ruin. The motto being, "Try not to get behind in your work".