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Lehman buys some time with restructuring plan

From Times staff writer Walter Hamilton:

Lehman Bros. Holdings Inc. tried to plug the leaking dam today. For the moment, investors seem to think it’s enough.

Amid mounting worries about its viability, the struggling investment bank said it would unload a chunk of troubled assets, sell a majority stake in its money-management unit and slash its dividend 93%.

The restructuring announcement came as Lehman reported a $3.9-billion fiscal third-quarter loss -- far exceeding its $2.8-billion second-quarter hit.

The New York firm took a pre-tax write-off of $7.8 billion, including $5.3 billion for investments tied to residential mortgages and $1.7 billion related to commercial real estate investments.

Richardfuld_3 Lehman also said it would shunt up to $30 billion in commercial real estate assets to a new entity that will be spun off to shareholders.

The annual dividend is being chopped from 68 cents a share to 5 cents to conserve cash.

"This is an extraordinary time for our industry, and one of the toughest periods in the firm's history," Chief Executive Richard Fuld said in a statement.

The company’s stock, which plummeted 45% Tuesday, jumped about 19% in pre-market trading, and has since stabilized at just under $8. At about 10:25 a.m. PDT the shares were off 2 cents to $7.77.

But the news isn't helping the brokerage sector overall. Merrill Lynch & Co.'s shares were down $1.39 to $23.37, a new multiyear low. Goldman Sachs Group was down $4.95 to $156.72.

Glaringly absent from today’s announcement was any sort of capital injection from outside investors that could bolster Lehman’s balance sheet.

News on Tuesday that the company failed to persuade a South Korean state bank to buy a stake in the firm triggered the massive decline in Lehman’s shares -- and forced the company to rush its restructuring announcement, originally scheduled for late next week.

Lehman’s goal today was simply to buy desperately needed time to find another capital partner, analysts said.

Like Bear Stearns Cos. before it, Lehman runs the risk that clients and other Wall Street firms could become so spooked about its financial health that they stop doing business with it -- the often fatal "run-on-the-bank" scenario.

Unlike Bear Stearns, which was forced into the arms of rival JPMorgan Chase & Co. in March, Lehman has a huge advantage in that it can borrow from the Federal Reserve if it’s strapped for money.

Nevertheless, Wall Street is losing patience with Lehman. Analysts chide the firm for not working faster and more aggressively to secure capital and clean up its balance sheet.

While rival Merrill Lynch last month dumped bad assets at less than a quarter of their original book value, Lehman has refused to partake in a fire sale.

Although that might be a good strategy long-term, the market increasingly is questioning whether Lehman will have a long term.

As David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in a note to clients today, Lehman is facing its "final options for saving the company."

Photo: Lehman CEO Richard Fuld. Kevin Wolf  Associated Press

 
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