Lehman Brothers Holdings Inc. raised $6 billion to help survive the collapse of the mortgage market after reporting a $2.8 billion second-quarter loss, the first since the company went public in 1994.
The fourth-largest U.S. securities firm fell 8 percent in New York trading after selling common and preferred shares at a price 13 percent below the close on Friday. The New York-based company sold about $130 billion of assets in the quarter and cut mortgage-related holdings and leveraged loans by as much as 35 percent.
Chief executive Richard Fuld, who said he was “very disappointed” with the results, is adding to the $8 billion he raised since February to quell concern that the global credit-market contraction would bring his firm down. Lehman's loss was three times bigger than the most pessimistic analyst surveyed by Bloomberg, though it was still just one fifth the losses reported by rival Merrill Lynch & Co.
“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,” said David Hendler, an analyst at CreditSights Inc. in New York. “They've got to start thinking about selling a strategic stake or selling the firm because there's just not enough business to go around.”
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Lehman dropped $2.81 to $29.48 at 4:20 p.m. in composite trading on the New York Stock Exchange. The stock is the worst performer this year in the 11-company Amex Securities Broker/Dealer Index. Goldman Sachs Group Inc. declined 2.2 percent to $165.76, Merrill Lynch & Co. lost 3.2 percent to $37.76 and Morgan Stanley fell 3.5 percent to $39.39.
The Lehman share sale included $4 billion of common stock priced at $28 apiece and $2 billion of preferred stock that converts to common in three years. The sale was oversubscribed in New York, people close to the firm said.
Banks and brokerages have raised more than $290 billion to make up for almost $392 billion in writedowns and credit losses since the start of last year, according to data compiled by Bloomberg.
Lehman's discounted share offering was “the least-good option,” Douglas Ciocca, a portfolio manager at Renaissance Financial Corp. in Leawood, Kansas, said in an interview with Bloomberg Television. “I would have rather seen more committed capital with a significant discount.”
Lehman had been talking to at least one U.S. pension fund and an overseas investor about taking a stake in the company, a person with knowledge of the matter said last week. Most of those buying shares today were U.S. institutional investors, chief financial officer Erin Callan said in an interview. She wouldn't identify them.