Lehman Brothers on Monday confirmed fears on Wall Street that the credit crisis isn't quite over, and it left investors to wonder if other...
NEW YORK — Lehman Brothers on Monday confirmed fears on Wall Street that the credit crisis isn’t quite over, and it left investors to wonder if other major investment banks face the same set of risks.
The nation’s fourth-largest investment bank said wrong-way trading moves and risky mortgage-backed securities plunged it into a nearly $3 billion second-quarter loss. It marks the first time Lehman was unable to post a profit since going public in 1994.
Its stock fell 8.7 percent, to $29.48, and helped drive a broad sell-off in bank and brokerage shares.
Lehman’s top executives, who have repeatedly assured investors that their books were safe, will fund the firm’s survival by raising $6 billion of fresh capital. It is a move many of Lehman’s competitors have already been forced to make.
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The announcements, made before the official June 16 release date of Lehman’s results, were an attempt to calm a market still badly shaken by the near-collapse of Bear Stearns in March. Analysts were disappointed that Lehman’s loss was much deeper than they expected, and felt it could have an impact on rivals.
Sanford C. Bernstein analyst Brad Hintz, a former chief financial officer of Lehman, said one concern is the $130 billion of mostly residential and commercial real-estate assets the firm sold during the quarter. Those sales triggered billions of dollars of gross mark-to-market adjustments — or accounting changes to the value of assets — since the beginning of last year.
Lehman said it expects to lose $2.87 billion, or $5.14 per share, for the period ended May 31, compared with the $1.3 billion, or $2.21 per share, it made in the year-ago period. Analysts had expected the company to report a loss of just 22 cents per share, according to Thomson Financial.
CEO Richard Fuld said he was “very disappointed” but said an offering to yet-unnamed investors will help keep the company whole amid continued market turmoil.