Lehman To Raise Fresh Capital
Tuesday, June 3rd, 2008Lehman is seeking cash again, in the form of billions of dollars. It is estimated that Lehman could sell about $3 billion in common stock, just two months after the firm raised $4 billion in a heavily oversubscribed sale of preferred stock.
That April 1 move unleashed a massive relief rally in the financial sector as Lehman, then rumored to be in danger of following in the footsteps of Bear Stearns into deep distress, showed it could easily raise new money to shore up its balance sheet.
But the mood in the banking and brokerage business has darkened again over the past week. Last week, hedge fund manager David Einhorn, who is short Lehman’s shares, questioned Lehman’s accounting, saying the firm hasn’t sufficiently reserved for possible losses on its portfolio of collateralized debt obligations.
Monday brought management shakeups at two big banks and a warning from ratings agency S&P that its outlook on the sector is negative, due to the weakening U.S. economy, falling real estate prices and the risk of future writedowns on already hard-hit balance sheets.
The Journal speculates that Lehman’s decision to explore raising new capital means its second-quarter loss, due to be reported in two weeks, could be wider than the expected $300 million. All Lehman will say is that it’s intent on reducing risk.
“It is our clearly articulated strategy to reduce the size of our balance sheet this quarter,” the firm told the Journal. After falling 8% Monday, Lehman shares were down about 1% in early trading Tuesday.
