(By Mayur Pahilajani - iStockAnalyst Writer)New York, NY - Many reports have confirmed the possibility that Lehman Brothers Holdings Inc. (NYSE: LEH) will soon be up for sale as investors' confidence has waned in the 158-year-old firm.
There are a few factors involved in the declining interest of traders in the U.S.'s fourth-largest investment bank.
Shares of the firm have been trading near $4 for almost a week in New York's composite trading. Stocks ended down by 42 percent and closed 25 percent down overnight on Thursday.
Last week, Lehman's stocks plunged after a planned deal to purchase shares in the company by the Korea Development Bank (KDB) fell through. Tumbling shares prompted immediate sell-off and the company started intensively talking with the U.S. government to formulate a potential rescue plan. Lehman's 24,000 employees, who owned its shares, have now incurred losses of approximately $10 billion.
Chairman and Chief Executive Officer Richard S. Fuld, Jr. have been meeting with officials on trying to fundamentally reposition Lehman Brothers by dramatically reducing balance sheet risk, which seems uncertain at this stage of financial crisis. Wall Street's longest-serving CEO Fuld, who joined the firm in 1961 as a college student, had collected Lehman's 10.9 million shares, which are now worth $45.8 million with a paper loss of $649.2 million (or 93 percent down) since the start of this year.
On Sept. 10, the New York-based investment bank had reported larger-than-estimated loss estimate of $3.9 billion (or $5.92 per share) in the third quarter. It also decided to slash its annual dividend to 5 cents a share, from 68 cents a share, a step to maximize value for clients, shareholders and employees. Lehman faced mark-to-market writedowns of $7.8 billion, mainly from its commercial and residential mortgage holdings. In the last two quarters, Lehman reported up to $7 billion in losses related to mortgage securities and other bad loans.
Lehman's survival depends on reluctant sale of commercial-real-estate assets worth $25 billion to $30 billion. Lehman Brothers had laid out plan to generate additional capital through the sale of a majority stake in its prized Neuberger Berman investment-management business.
The market analysts are speculating that the talks between the company, the U.S. Treasury Department and Federal Reserve are likely to steer Lehman towards sale. However, some reports have suggested that the U.S. government may not bailout the beleaguered firm, just like it rescued Bear Stearns Cos. from collapsing. Lehman's executives are working frantically looking for a banking firm to takeover or purchase a portion of the firm in the past 24 hours.
Some of the potential buyers mentioned by Wall Street analysts during the week include Bank of America Corp. (NYSE: BAC), France's BNP Paribas (Euronext: BNP), Britain's Barclays Bank PLC (BCS), Germany's Deutsche Bank AG (DB), Goldman Sachs Group Inc. (NYSE: GS) and Japan's Nomura Securities (CNS). Goldman Sachs has showed no interest, while Bank of America Corp. looks like a strong buyer for Lehman. Some analysts have suggested for the Bank of America to form a consortium of buyers with Barclays Bank PLC and other private equity companies to purchase Lehman.
At an individual buyer's level, the Charlotte, North Carolina-based, Bank of America, can gain access to one of the country's top fixed income desks to bolster its finances. Lehman has stronger equities underwriting and targets large companies as its clients. Bank of America can gain from Lehman's presence in the European region.
If executives at Lehman Brothers failed to decide by Monday (Sept. 15), there is a possibility that it may face downgrade from top rating agencies including Moody's Investors Service and Standard & Poor's. The downgrade would make it difficult for the firm to raise capital and increase its borrowing costs. This will also repel investors from trading with the company, leading the firm to collapse and causing lenders to abandon it. At 9:27 a.m. EDT on Friday, shares of the firm were trading higher at $3.78 in composite trading on the New York Stock Exchange, after it stocks closed at $4.39 on Thursday.
