- The Washington Times - Tuesday, June 10, 2008

Wall Street that the credit crisis isn’t quite over, and it left investors to wonder whether other major investment banks face the same set of risks.

The nation’s fourth-largest investment bank said wrong-way trading moves and risky mortgage-backed securities plunged it into a nearly $3 billion second-quarter loss. It marks the first time Lehman was unable to post a profit since going public in 1994.

Its stock fell nearly 9 percent and helped drive a broad sell-off in bank and brokerage shares.

Lehman’s top executives, who have repeatedly assured investors that their books were safe, will fund the firm’s survival by raising $6 billion in fresh capital. It is a move many of Lehman’s competitors have already been forced to make.

The announcements, made before the official June 16 release date of Lehman’s results, were an attempt to calm a market still badly shaken by the near collapse of Bear Stearns in March. Analysts were disappointed that Lehman’s loss was much deeper than they expected, and felt it could have an impact on rivals.

“There is a broader element to all this,” said Fox-Pitt Cochran. “Management considered this to be an aberration, but I think you’ll see similar results in form and structure, just the magnitude will be smaller.”

There had been market speculation that Lehman was seeking outside investors to offset losses during the quarter and fortify its balance sheet. Some analysts felt the firm’s balance sheet was the closest of all the Wall Street firms to Bear Stearns, which narrowly avoided bankruptcy in March through its government-sponsored sale to JPMorgan Chase & Co.

The firm was under pressure after Greenlight Capital, vocally and publicly raised questions about Lehman’s earnings during the first quarter. He said the company has not disclosed all of its losses, and felt Monday’s announcement was only the start.

“Lehman is raising $6 billion that they said they didn’t need to replace losses that they said they didn’t have,” he said in an interview. “Since the credit markets actually improved this quarter, such losses primarily reflect losses that might have been taken in prior quarters. A preliminary analysis of the pre-release and conference call suggests that there are still unrecognized losses on the balance sheet.”

But so far, Lehman appears in better shape - and possibly has generated more confidence among investors - than Bear, which was badly undermined when panicky customers withdrew their money from the investment bank. Moreover, after the Federal Reserve helped engineer JP Morgan’s buyout of Bear, investors have felt more secure that the government is unlikely to let a big investment bank fail.

Lehman shares fell $2.81, or 8.7 percent, to $29.48. Fitch Ratings both cut their ratings on Lehman, exacerbating the decline.



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