No small change moves for this investment bank. Lehman Brothers (LEH) seems to do everything by the billions. Lehman raised $12B in new capital so far this year. Most recently, the $6B capital raise of which at least the $4B stock portion is out of money this morning. Lehman claims that they did not need the money, but this should end talk about its liquidity. The market appears to disagree.
Lehman is expecting a $2.8B loss this quarter, including a $2B loss in Alt-A residential mortgages. They went bargain hunting earlier this year for $2B in additional Alt-A. Astute hedging increased Lehman’s commercial mortgage losses by $1.1B.
Lehman’s real estate ventures were no less timid. Archstone-Smith was acquired with the help of Tishman Speyer Properties for $22B. Lehman still retains $1.6B in Southern California housing lots in a joint venture with developer SunCal. After $3.7B in commercial real estate loss on sales and write downs reported Monday, Lehman has $29B in commercial real estate debt.
The Wall Street Journal “Lehman's Property Bets Are Coming Back to Bite” details the Archstone transaction. Lehman put up $250M in equity, and led a group of banks that financed $4.6 in debt. The rent from the 80,000 apartments does not even cover the interest payments, so they are liquidating properties. The trouble for Lehman was the secondary market for Archstone debt evaporated.
The SunCal lots are located in California’s Inland Empire, where property values have dropped up to 60%. The venture has received a notice of default for $235M. Was Lehman too much of a momentum player?
Most confusing to me is the level of Lehman’s leverage. They claimed to have reduced their leverage to 25 times equity from 31.7 times, and sold $130B in assets. The International Herald Tribune “Lehman posts loss and plans to raise fresh capital” reports Lehman’s net leverage dropped from 15.4 to 12.5. Portfolio “The Debt Shuffle” explains that net leverage does not include hedges and equity includes prefers.
This is quite a soup of large numbers, difficult for an amateur to analyze. Add to that, Lehman says with the new capital they are ready to accelerate again. What is left is faith in management. The shorts say forget that. I think that the Fed is unlikely to turn Lehman into another Bear Stearns (JMP), but its stock still has plenty of room to fall. Put in a $10 limit order and hope for a spike down.
Disclosure: Author is long JPM.
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Lehman is expecting a $2.8B loss this quarter, including a $2B loss in Alt-A residential mortgages. They went bargain hunting earlier this year for $2B in additional Alt-A. Astute hedging increased Lehman’s commercial mortgage losses by $1.1B.
Lehman’s real estate ventures were no less timid. Archstone-Smith was acquired with the help of Tishman Speyer Properties for $22B. Lehman still retains $1.6B in Southern California housing lots in a joint venture with developer SunCal. After $3.7B in commercial real estate loss on sales and write downs reported Monday, Lehman has $29B in commercial real estate debt.
The Wall Street Journal “Lehman's Property Bets Are Coming Back to Bite” details the Archstone transaction. Lehman put up $250M in equity, and led a group of banks that financed $4.6 in debt. The rent from the 80,000 apartments does not even cover the interest payments, so they are liquidating properties. The trouble for Lehman was the secondary market for Archstone debt evaporated.
The SunCal lots are located in California’s Inland Empire, where property values have dropped up to 60%. The venture has received a notice of default for $235M. Was Lehman too much of a momentum player?
Most confusing to me is the level of Lehman’s leverage. They claimed to have reduced their leverage to 25 times equity from 31.7 times, and sold $130B in assets. The International Herald Tribune “Lehman posts loss and plans to raise fresh capital” reports Lehman’s net leverage dropped from 15.4 to 12.5. Portfolio “The Debt Shuffle” explains that net leverage does not include hedges and equity includes prefers.
This is quite a soup of large numbers, difficult for an amateur to analyze. Add to that, Lehman says with the new capital they are ready to accelerate again. What is left is faith in management. The shorts say forget that. I think that the Fed is unlikely to turn Lehman into another Bear Stearns (JMP), but its stock still has plenty of room to fall. Put in a $10 limit order and hope for a spike down.
Disclosure: Author is long JPM.
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