Lehman to build $6bn in capital after losing $2.8bn in Q2

Lehman Brothers Holdings Inc. pre-released figures for the second quarter, and for the first time since it’s inception as a public company in 1994, the bank is posting an expected loss of $2.8 billion.

This is in spite of previously being one of the few banks only lightly brushed by the credit market crisis that erupted last year.

The bank, a spin-off company from American Express Co., has already made moves to counter the loss, by raising a new $6 billion in capital through $4 billion in common stock (which was sold at a 13% discount rate from the closing price of stock on Friday, $28 from $32.29).

Furthermore, it is to raise $2 billion in convertible preferred stock, which were $1,000 each and will pay out a coupon of 8.75% until July 1 2011, after which point they will become shares in Lehman Brothers, somewhere between 30.2663 and 35.7142 in total.

Other attempts to reduce the impact of this loss was the 20% reduction of mortgage based assets and leveraged loans, and the selling of $130 billion of assets. Though this still will not dramatically alter the $5.14 per share loss for the second quarter.

Analysts have suggested that possible investors may include CV Starr, former chief executive of AIG, Hank Greenberg’s investment company, and the pension fund managed by New Jersey Division of Investment.

Chief executive of Lehman Brothers, Richard Fuld, stated that he had been highly disappointed by the results for the second quarter, though he did acknowledge that it was the first such loss for the investment bank.

William Tanona, analyst for Goldman Sachs, said that this figure was much worse than what was previously anticipated. Lehman Brothers had been expected to lose roughly 22 cents per share, but wound up losing roughly $2.21 per share.

As a result of the dramatic loss, Moody’s Investors Service revoked the status of ’stable’ for Lehman and instead gave the investment bank the status of ‘negative’. Fitch Ratings followed suit and reduced the evaluation of long-term debt with Lehman to a grade of A+ from A++.

However, Director of research at Clover Capital Management, Steve Gutch, stated that Lehman will not follow in the footsteps of Bear Stearns, and will recover from this.

Full financial details for Lehman Brothers Holdings Inc.’s second quarter will be released on June 16.

Story link: Lehman to build $6bn in capital after losing $2.8bn in Q2