- The Washington Times - Saturday, July 12, 2008

Shares of Lehman Brothers Holdings Inc., once the biggest U.S. underwriter of mortgage bonds, fell the most since Bear Stearns Cos. collapsed in March, amid speculation Friday that home loan-financing companies Freddie Mac and Fannie Mae might fail.

Lehman, which has lost about 37 percent of its market value this week, dropped $2.87, or 17 percent, to $14.43 in New York Stock Exchange composite trading, even after Treasury Secretary Henry M. Paulson Jr. said federal regulators are backing Fannie Mae and Freddie Mac “in their current form.” The Amex Securities Broker/Dealer Index of 11 companies including New York-based Lehman declined 2 percent.

Fannie Mae and Freddie Mac fell more than 40 percent Friday before Mr. Paulson’s remarks, which signaled the administration’s intent to keep them as shareholder-owned companies. Placing the firms under government control would wipe out equity holders.

The companies face pressure to raise more capital amid a credit contraction that has saddled banks with $410.1 billion of write-downs. A government takeover of one or both of them was among several options being weighed by the White House, said Joshua Rosner, an analyst with Graham Fisher & Co., who met with Bush administration officials in Washington.

“It is impossible to contemplate all of the negative events that will occur if Fannie and Freddie go under,” said Richard Bove, an analyst at Ladenburg Thalmann & Co.

Fannie Mae fell $2.95, or 22 percent, to $10.25 Friday. Freddie Mac slid 25 cents, or 3.1 percent, to $7.75.

Fannie and Freddie’s problems “cast a pall over everyone. If they have problems, everyone else has to deal with that perception,” said David Hendler, an analyst at CreditSights Inc. in New York. “It’s going to be difficult without more definitive government support,” he said, adding that Mr. Paulson’s statement “is a step in the right direction.”

Goldman Sachs Group Inc., the biggest U.S. securities firm, declined 4.5 percent to $162.48. Morgan Stanley, the No. 2 firm, dropped 7 cents to $33.44, while Merrill Lynch & Co. fell 3.8 percent to $27.61. All the firms are based in New York.

The record share price decline hasn’t damaged Lehman’s liquidity, funding or client business, Standard & Poor’s said Friday.

“The firm’s management continues to successfully implement a number of measures - including strengthening its funding platform, reducing exposure to troubled assets and increasing capital - to ensure the maintenance of sound liquidity and the ability to meet funding obligations,” S&P; said.

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