LEHMAN BROTHERS Holdings shares sank as much as 40 per cent yesterday on concerns that talks on a possible investment from Korea Development Bank (KDB) had broken down and that the fourth-largest Wall Street investment bank would be unable to raise needed capital.
Shares began falling after a Dow Jones newswires report that the chairman of South Korea's top securities regulator, Jun Kwang-woo, had said talks between Lehman and KDB had ended. A spokesman for the regulator denied the report, saying Mr Jun never made any such declaration.
The Dow article also quoted an unnamed government official as saying KDB had decided not to invest in Lehman.
"The market fears that no one will inject capital in the company," said Nick Kalivas, equity market analyst at MF Global Research.
In afternoon trading, Lehman shares were down $5.50, or 38.9 per cent, at $8.65 on the New York Stock Exchange. They earlier touched $8.50, their lowest level since October 1998.
A Lehman spokeswoman and representatives for the US Federal Reserve and Securities and Exchange Commission declined to comment. A US Treasury Department spokeswoman said the department stays in touch with Wall Street on a regular basis.
Standard Poor's said it may cut Lehman's "single-A" long-term credit rating, its fifth-lowest investment grade, citing "heightened uncertainty" about the bank's ability to raise capital as its shares fall. It said a downgrade could be more than one notch.
Lehman shares have fallen 87 per cent from their 52-week high of $67.73, achieved last November 14th. "This has been going on for a while now and people are worried about liquidity, survival," said Rose Grant, a portfolio manager at Eastern Investment Advisors. She said the firm invests $1.8 billion and has never owned Lehman shares.
Lehman chief executive Richard Fuld has been scrambling to raise capital as losses mount from its mortgage holdings.
The bank has been reviewing options for its Neuberger Berman asset management unit, one of its healthier businesses, and some analysts expect it to spin off or dispose of much of its commercial real estate portfolio.
Analysts have said Neuberger could fetch $7 billion to $8 billion in a sale.
Lehman had a second-quarter loss of $2.8 billion, or $5.14 per share. Analysts on average expect a third-quarter loss of $3.04 per share.
"There are relatively few parties who have the ability to move quickly to help shore up Lehman Brothers' credit quality," said Sean Egan, managing director at Egan-Jones Ratings. "Unfortunately, Lehman has to move rapidly to calm counterparty concerns."
Smaller rival Bear Stearns collapsed in March after its trading partners stopped doing business with it, triggering the equivalent of a bank run. Bear was subsequently acquired by JPMorgan Chase.
On Monday, Lehman said it expected to report third-quarter results and discuss "key strategic initiatives" on September 18th.
But Citigroup analyst Prashant Bhatia yesterday wrote that Lehman might announce the quarterly results as soon as today because of downward pressure on its shares. - (Reuters)
