Seeking to quell investor and market speculation about its future, Lehman Brothers Holdings Inc. (LEH) said before market open on Monday morning that it expected to post a $2.8 billion loss for the second quarter as it struggles with the continued collapse of the private-party mortgage securities market, the securities firm’s first-ever quarterly loss as a publicly-traded company. The embattled Wall Street bank also said it would raise $6 billion, in an effort to shore up its capital resources amid continuing deterioration in the national housing market. So much for improving investor confidence: Lehman’s shares fell nearly 10 percent on the New York Stock Exchange in pre-market trading, and were off nearly 7 percent when this story was published. “I am very disappointed in this quarter’s results,” said CEO Richard Fuld. News of an effort to raise $6 billion in fresh capital comes on top of the $8 billion Fuld has already raised since February, and after Lehman posted better-than-expected results for the first quarter. Those results had many investors believing the worst of the mortgage mess may be behind Wall Street’s largest investment banks, hopes that now were clearly premature. In a press statement, Lehman acknowledged that its hedging activity had failed it during the quarter, and said it incurred losses on hedges although it didn’t disclose the degree to which ineffective hedges hit the bottom line. Many Wall Street firms are expected to report similar hedged losses this quarter, sources close to various investment banks told Housing Wire Monday morning. “Lehman isn’t alone on this,” said one source, an MBS trader who asked not to be identified by name. Lehman also confirmed that it had been delevering its balance sheet during the past month, and said it had sold $130 billion in assets — including reducing its exposure to residential mortgages, commercial mortgages and real estate investments by 15 to 20 percent for each asset category. Gross leverage had been reduced from 31.7 of assets to under 25 times assets during the quarter, the company confirmed. Not surprisingly, driving much of the quarter’s losses will be the company’s fixed-income capital markets business, which Lehman said will contribute $3.0 billion in losses to the company’s consolidated bottom line for the second quarter.
Lehman to Raise $6 Billion; Expects $2.8 Billion Loss in Q2
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