(AFP) – Sep 9, 2008
NEW YORK (AFP) — Shares of Lehman Brothers went into a freefall Tuesday as hopes faded for an injection of fresh capital for the ailing Wall Street investment bank, analysts said.
Lehman, one of Wall Street's most prominent investment firms, saw its shares tumble 44.95 percent to end at 7.79. The shares have plunged 88 percent since February.
Selling pressure accelerated Tuesday after the Wall Street Journal reported the Korea Development Bank, the state-run South Korean firm, had put talks on hold with the US firm. KDB had reportedly been eyeing a 25 percent stake for some four billion dollars.
Standard & Poor's said it placed Lehman credit rating on watch with a potential for a downgrade -- which could further complicate efforts to raise capital.
The decision "stems from heightened uncertainty about Lehman's ability to raise additional capital, based on the precipitous decline in its share price in recent days," said S&P analyst Scott Sprinzen.
S&P said it believes "that the company incurred a substantial net loss in the third quarter because of persisting difficult conditions in the investment-banking trading markets and write-downs from deteriorating market valuations of its mortgages and mortgage-related securities."
S&P said it sees Lehman's "near-term liquidity as satisfactory," even as it takes steps to keep cash flowing "in a stressed operating environment."
The latest news dampened hopes for a white knight to save Lehman, which has been bleeding cash as a result of the US housing crisis and credit crunch.
"Battered by losses, Lehman has been looking to raise funds to help rebuild its capital position," analysts at Briefing.com said Tuesday.
"With plenty of funds from overseas players already committed after earlier rounds of losses were incurred by Wall Street banks, Lehman is finding it difficult to tap into a new source."
Analysts at RGE Monitor, an economics website of New York University economist Nouriel Roubini, said Lehman "must choose between selling troubled portfolios and recognize losses on those assets such as its commercial real estate assets, or selling crown jewels such as the asset management business Neuberger Berman worth as much as 10 billion dollars."
"Panic has set in" on Lehman, said Douglas McIntyre at the financial website 24/7 Wall Street.
"Rumors in the market range from the firm facing much larger-than-expected write-offs in the quarter to be announced later this month to several potential investors in both the parent and (asset management unit) Neuberger walking away. There is also analysis being passed around that the market cap of Lehman is less than the value of Neuberger, leaving the balance of the company's businesses at zero."
Lehman was scheduled to release its earnings and recovery plans on September 18. Analysts expect more hefty losses after an unprecedented second-quarter loss of 2.8 billion dollars.
Lehamn has had to write off 17 billion dollars in soured investments over the past year and some say more writeoffs are looming.
Lehman, like many of its Wall Street rivals, has seen its finances stressed by housing and credit woes which has made bankers more cautious about lending money to corporate clients and private equity firms.
A rival finance house, Bear Stearns, faced a metldown in mid-March following vast losses tied to mortgage-backed securities before the Federal Reserve backed an eleventh-hour takeover by JPMorgan Chase.
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