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For Lehman, surviving comes at a cost

Aug 19, 2008 Investment Opinions

Surviving at a cost

Commentary: Merrill and Lehman will survive but lose key parts

By MarketWatch

Last Update: 8/19/2008 8:52:00 AM

NEW YORK (MarketWatch) - Dick Fuld, Lehman Brothers Holdings Inc.’s chief
executive, has decided to sell off one of the company’s most prized assets to
survive.

Lehman (MER) is reportedly shopping Neuberger Berman, the asset management firm
it bought for $2.6 billion in 2003. At the time, the deal signaled both Lehman’s
financial strength and Fuld’s vision toward remaking what had primarily been a
bond house into a diversified financial institution.

But like Merrill Lynch & Co.’s (MER) sale of its stake in Bloomberg LP, the sale
of Neuberger Berman will strip Lehman of part of its identity, leaving it more
like the narrowly focused business Fuld sought to change five years ago and more
exposed to its sick balance sheet.

He may not have a choice, and this may in part, be the fault of Merrill which
sold much of its balance sheet exposure for a few cents on the dollar last month.
Lehman will be forced to write down another $4 billion at the end of the third
quarter, according to J.P. Morgan analyst Ken Worthington. Estimates are that
Lehman will lose $1.8 billion. It’s biggest problem is that a business plan for
the firm has yet to emerge.

Equity and debt underwiting is slowing. Dealmaking and trading are sluggish,
Worthington pointed out in a research note Monday.

Lehman must act. Even though selling Neuberger would leave Lehman exposed, it
faces greater risk by hoping for the winds to shift. Without the government
blocking naked short sellers, Lehman is exposed to market rumors, and more likely
a loss of faith in the market that it can turnaround.

By buying Neuberger, Fuld sought to change the make-up of Lehman. By selling it,
he’s hoping the company will survive.

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Technorati Tags: Asset Management Firm, Bloomberg Lp, Business Plan, Dick Fuld, Diversified Financial Institution, Financial Strength, J P Morgan, Ken Worthington, Lehman Brothers, Lehman Brothers Holdings, Lehman Brothers Holdings Inc, Market Rumors, Marketwatch, Merrill Lynch, Merrill Lynch Co, Neuberger Berman, S Vision, Short Sellers, Sick Balance Sheet, Turnaround

Tags: Asset Management Firm, Bloomberg Lp, Business Plan, Dick Fuld, Diversified Financial Institution, Financial Strength, J P Morgan, Ken Worthington, Lehman Brothers, Lehman Brothers Holdings, Lehman Brothers Holdings Inc, Market Rumors, Marketwatch, Merrill Lynch, Merrill Lynch Co, Neuberger Berman, S Vision, Short Sellers, Sick Balance Sheet, Turnaround