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By Jennifer Yousfi
Lehman Brothers Holdings Inc. (LEH) was forced to raise fresh capital yesterday (Monday), evidence that the subprime-fueled credit crisis is still far from over.
"I am very disappointed in this quarter's results," Chairman and Chief Executive Officer Richard S. Fuld, Jr. said in a company statement released yesterday. "Notwithstanding the solid underlying performance of our client franchise, we had our first-ever quarterly loss as a public company."
The fourth-largest U.S. investment bank announced it would raise $6 billion to offset an expected $2.8 billion loss in its fiscal second quarter. Lehman said it expects a loss of $5.14 per share in the period ended May 31, compared to a profit of $489 million, or 81 cents a share, for the same period a year ago, MarketWatch reported.
The loss was much higher than expected and due in large part to a $3.7 billion write-down of mortgage-backed assets.
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"It's kind of sobering for people who have been listening to the company these last six to nine months that they had everything under control," David Hendler, an analyst at CreditSights Inc. in New York, told Bloomberg News. "It shows that the market continues to be difficult. I would say Lehman's probably not the only broker that has these kinds of pressures."
Lehman will offer 143 million shares of common stock at $28 apiece, expanding the bank's shares outstanding by 25% and raising $4 billion. The investment bank will also offer $2 billion in preferred shares that will carry an 8.75% yield and be convertible into common stock in a price range between $28 and $33 each, DowJones reported.
The sales should close Thursday. And unlike many financial firms such as Citigroup Inc. (C) and Merrill Lynch & Co. Inc. (MER), which have turned to international sovereign wealth funds for capital infusions, most of Lehman's buyers were U.S. institutional investors.
"The loss was greater than expected but the capital raise is also a little bit greater than people had anticipated, which I think makes for a net positive," David Killian, a portfolio manager at Stoneridge Investment Partners in Malvern, Pennsylvania, told Bloomberg.
Lehman stock dropped immediately following the release. Shares shed $2.81, a decline of 8.7%, to close at $29.48 yesterday. The stock is down over 54% year-to-date and has traded between $20.25 and $82.05 over the past 52 weeks.
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Lehman to post $2.8 billion quarterly loss