Lehman Brothers (LEH), reports NYT – is about to lay off as many as 1,200 sales people and traders, 5% of its work force, before it announces third-quarter results on Sept. 15. This is co.’s second round of layoffs since June 2007, where 6,000 employees, mostly in the mortgage origination and securitization businesses were let go.
The ailing Wall Street bank, which has been severely affected by the decline in commercial and residential real estate markets — is currently scrambling to put together a plan aimed at shoring up its balance sheet, which, speaking in objective terms ; at this point is easier said than done. The company, considering its current financial position – must do much, much more than just hand people pink slips. Lehman’s $40 billion in commercial real estate loans and securities, keeps deteriorating value-wise on almost weekly basis. Other business units, such as its advisory work, are constantly declining. Furthermore, the co. expects additional write-downs out of its commercial real estate holdings and hedge fund investments. The co., at this point, needs to raise cash and fast. At least, $4-$5 billion of it.
According to Ladenburg Thalmann (LTS), an investment bank and stock brokerage firm — Lehman’s announcement is expected to be the first in a series that may be made in the next 10 days as the co. comes to grip with its problems. The sharp PPS decline of almost 80% as the banks prospects continue to dim, combined with what the firm believes is “the real likelihood of a hostile takeover”, may now be forcing management to deal with its problems.
Ladenburg Thalmann sees three major problems that needs to be addressed by Lehman, if an hostile takeover is to be prevented:
1) Lehman must more aggressively write-down its commercial real estate holdings, residual holdings in residential real estate offerings, and its hedge fund investments.
2) The firm must bring in capital to offset the write-downs no matter how dilutive.
3) It must re-establish its relationship with key employees who feel that their incomes have been hurt because they were willing to take LEH stock rather than cash for their bonuses.
LT, lists private equity funds, banks, and investment banking firms, as the most likely types of banks capable of buying and restructuring the once high-flying investment bank.