Posted on 03/31/2008 4:45:25 PM PDT by DeaconBenjamin
NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEH.N), an investment bank beset by rumors of not having enough funding, said it plans to raise $3 billion of capital to quash questions about its stability.
Lehman's shares fell 2.8 percent to $36.60 in after-market trading after the planned convertible preferred share offer was announced, since it could result in more shares being issued.
Chief Financial Officer Erin Callan told Reuters the deal was meant to end questions about the bank's balance sheet, and the capital was not needed to offset the impacts of write-downs or losses.
Several large institutional investors have agreed to buy at least $2.5 billion of the offering, and smaller funds looking at buying into the deal said demand is strong.
Mike Holland, who oversees more than $4 billion at Holland & Co, is not trying to buy the convertibles, but says if the sale goes well, it could put fears about Lehman to rest.
"If investors thought there were real problems at Lehman, you couldn't find buyers for $3 billion of securities at any price," he said.
Lehman's shares have fallen 40 percent since the start of February, worse than the U.S. broker-dealer sector as a whole, despite the company posting stronger-than-expected quarterly earnings and discussing at length with investors the sources of its funds.
The fourth-largest U.S. investment bank says it can sell or borrow against some $200 billion of assets if necessary, and like other investment banks can now borrow from the Federal Reserve.
Lehman has not lost any access to short-term secured debt markets, known as repo markets, nor has it lost major trading counterparties in recent weeks, but its share price has suffered nevertheless.
TROUBLE IN JAPAN
Adding to Lehman's difficulties, the company was cheated of some $350 million in a fraud in Japan. The investment bank sued Marubeni Corp (8002.T) on Monday and blamed the Japanese trading house's staff for the swindle.
Lehman said it took appropriate reserves in the first quarter and has insurance coverage to offset any damage from the scam.
Marubeni said in a statement on Saturday its staff had been manipulated and it fired two contract employees involved in the case.
Lehman had been one of the few major global investment banks to avoid raising additional capital during the credit crunch. The other one is Goldman Sachs Group Inc. But Merrill Lynch & Co Inc (MER.N) and Morgan Stanley (MS.N) have each raised billions of dollars of capital in recent months.
Lehman, the fourth-largest U.S. investment bank, said it can sell up to another $450 million of additional convertible preferreds to meet extra demand.
The convertible securities are expected to be sold with a dividend yield of 7 percent to 7.5 percent and a conversion premium of 30 percent to 35 percent, according to investors looking at the deal.
I read this morning that they have $34 billion in cash already.
I think they probably can pay what they have to.
“the deal was meant to end questions about the bank’s balance sheet, and the capital was not needed to offset the impacts of write-downs or losses.”
Dilute the stock for money you don’t need? Interesting.
What’s the skinny on Deutsche Bank?
They seem to show every few days on a foreclosure in the local public record.
They probably don’t need it, but they obviously want to bolster confidence in their financial situation since that’s so important in their business. The mere fact that there have been rumors about their liquidity puts them at risk of a run like what happened with Bear Stearns, and this will certainly help ease those fears.
Or heighten them.
Obviously if they tried to shop this preferred stock around and had trouble finding buyers that could be dangerous, but I don’t think this really will be. There were already enough rumors circulating about Lehman that it’s not like this will give people new ideas or anything.
Exactly. There's no titanic....everyone's safe. It's never been a better time to buy, buy, buy!!!
"There is absolutely no truth to the rumors of liquidity problems that circulated today in the market. Bear Stearns' balance sheet, liquidity and capital remain strong."~~Alan Schwartz, Bear Stearns CEO, March 10, 2008
Absolutely..............there's nobody like an "honest" swindler..... : )
Lehman's shares have fallen 40 percent since the start of February, worse than the U.S. broker-dealer sector as a whole . . .
Not a very good sign. JMHO -- But raising $ 3 billion may act to dilute shareholders equity.
Nothing to see here. Time to move on . . .
Famous last words. This happened to Bear. Just 3 or 4 days before the collapse, they came on TV and said “We have $17 billion in cash, we’re fine”
And then everyone they owed money to said “Phew! Let’s go get it while we can” and the $17B dried up almost overnight. Then the other banks wouldn’t lend as they saw the money drying up.
NEW YORK (HedgeWorld.com)-Lehman Brothers Holdings Inc., in announcing Tuesday [April 1] that it would raise $4 billion through a convertible stock offering, is fending off short sellers' efforts to raid the bank.Management has been saying over the past couple of weeks that it did not need additional capital, but that was not enough to calm the market. But by raising long-term capital, the bank succeeded, at least for now, in stopping short bets.....
But now they have access to the Fed window, which has unlimited cash. If that had been the case with BSC, they would be in a different situation.
There’s rumors on the street that Lehman may be sold.
zat so??!!
And I Thought Worst Was Almost Over . . . Land Never Loses Value . . .
Excerpt:
Centex Corp [CTX] just announced that they sold about 10 percent of their land holdings to a joint venture for what analysts compute is about 18 cents on the dollar.
In my best W. C. Fields voice over: 'Sweet Mother of Pearl' . . .
Saw that over at the “rumors section” of the usual place...its just a rumor...but who knows
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