More news on the Lehman Brothers (LEH) front. The New York-based firm currently faced with crippling losses, according to the on-line edition of the WSJ – has structured a plan that would allow the firm to offload billions of dollars in real-estate loans from its balance-sheet.
For the real-estate assets, Lehman has set up a ‘good bank/bad bank’ structure which will involve a spinoff of the holdings to shareholders as well as an investment by outside investors. The investment bank is also looking to sell all or part of its asset management arm Neuberger Berman, worth as much as $10 billion. The Journal notes however, the co. is still fighting through some crucial and final details in the overall plan, including finding financing in a cash-strapped environment for a spinoff or sale of its assets. It isn’t clear yet when the plan will be unveiled.
Ideally, in addition to offloading the real-estate assets — Richard Fuld, Lehman’s CEO and his management team would like to announce both transactions simultaneously, assuring investors that the co. is taking the necessary steps to navigate its way out of the current credit crisis. Through this plan the co. aims as well to give reassurances that despite Lehman’s current financial circumstances – the co. won’t suffer the same fate as smaller rival Bear Stearns which collapsed in March when creditors and investors balked at doing business with the firm.
Lehman Brothers was the largest underwriter of mortgage bonds during fiscal ’07 and has been trying rigorously in the last few quarters, through exploratory talks with private-equity or strategic bidders, to reduce assets linked to that market. Lehman has also been in talks with potential investors who’d buy a stake in the firm. Private-equity firms including Kohlberg Kravis Roberts & Co. and Carlyle Group have expressed their interest in the business. Korea Development Bank also last week said it was considering an investment in Lehman.
As of May of fiscal ’08 – the investment bank had around $40 billion in commercial-mortgage assets and another $24.9 billion in residential assets. Certainly, selling their troubled assets will help alleviate some pressure from the co’s balance sheet. How much however, is anyone’s guess.
Lehman Brothers has been the worst ’08 performer on the 11-company Amex Securities Broker/Dealer Index (XBD) an equal-dollar weighted index which measures the performance of highly capitalized co.’s in the U.S. securities broker/dealer industry.
The co. posted a $2.8 billion loss in the 2Q’08, which ended May 31, amid speculation that it may have further writedowns on mortgage-related assets.