- The Washington Times - Thursday, September 11, 2008

Lehman Brothers has resorted to selling off the family jewels in an increasingly desperate attempt to stay solvent, as the seemingly limitless fountain of cash generated by bets on oil and other commodities and currencies has turned into a dry hole.

For most of the year, Lehman Brothers was able to eke out an acceptable performance despite mounting credit losses by riding a tidal wave of trading profits generated by higher oil and commodity prices and a falling dollar.

On Wednesday, however, Lehman reported losses in its commodity and currency dealings where it had boasted of strong earnings in the previous quarter. While it did not specify what caused its hedging and trading losses in the latest quarter, it coincided with a drop in oil prices from more than $147 a barrel to nearly $103.

With the oil bubble deflating rapidly, Wall Street has been bracing for more victims of the commodities fallout since last week’s failure of a major hedge fund invested in oil.

“It’s disturbing to see the smartest guys in the room losing so much money in commodities,” said Peter Holst, managing director at Delta Global Advisers, suggesting that some of the losing fund managers may not have been familiar with the wild hot and cold swings typical of the commodities markets.

“It hurts,” he said.

Some other analysts said Lehman’s problem might have been that it wasn’t invested heavily enough in the lucrative commodities business, which is dominated by four other Wall Street titans: Goldman Sachs, Morgan Stanley, JP Morgan and Barclays Capital, according to Greenwich Associates.

“Lehman lacks the powerful commodities division, which was a good chunk of Goldman’s good fortune” in recent quarters, said Antony Currie, analyst with Breakingviews.com.

Lehman Brothers put itself on the auction block Wednesday as part of a last-ditch effort to rescue the investment bank from bad bets on real estate-related holdings that have already laid low other storied Wall Street firms.

The 158-year-old company’s chief executive, Dick Fuld, outlined a plan to sell off Lehman’s well-respected investment-management unit and spin off its commercial real estate assets after it reported an almost $4 billion third-quarter loss. He said the company would also entertain offers for the entire company.

Finding a buyer might pre-empt any hostile takeovers now that Lehman’s stock has plunged from $67.73 a year ago to $7.25 Wednesday, giving it a shrunken market capitalization of $7.6 billion.

“If anybody came with an attractive proposition that was compelling for shareholder value, it would be brought to the board, discussed with the board and evaluated,” Mr. Fuld said. “We remain committed to examining all strategic alternatives to maximize shareholder value.”

For investors, the strategy Mr. Fuld presented seemed long on hope and short on details. Investors had hoped to see a solid plan in place to offset nearly $6.5 billion in losses during the past two quarters.

“This is agonizing for shareholders,” said Mark Williams, a professor of finance at Boston University School of Management. “Fuld was supposed to have a war room started in March, when Bear Stearns nearly collapsed, to solve these problems, and at this point he has failed miserably.”

The nation’s fourth-largest investment bank plans to sell a 55 percent stake in its investment-management division, which includes its prized Neuberger Berman asset-management unit. Lehman said it is in advanced talks with several bidders, but refused to give a timeline about when a deal would take place.

Investors were discouraged that no buyer had been named. Lehman began pitching a deal to private equity firms two months ago. Analysts think the sale could fetch about $3 billion.

Further, the firm is also taking a big bet that a spinoff of its commercial real estate assets will get a strong market reception in early 2009. The new entity will be called Real Estate Investments Global, and will be run by an independent management team.

Mr. Williams think that the company now has a limited amount of time, perhaps until Monday, to produce a bona fide deal or run the risk of shares tumbling even further. And, he said, that could lead to a worst-case scenario, in which rumors about the company cause anxious trading partners to pull business - which felled Bear Stearns six months ago.

This story is based in part on wire service reports.

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