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Lehman Shares Fall Below $28 Price In Capital-Raising >LEH

Last Update: 6/10/2008 11:50:06 AM

DOW JONES NEWSWIRES

Shares of Lehman Brothers Holdings Inc. (LEH) continued their fall, dropping over
6% Tuesday as their month-long swoon resulted in the brokerage shedding 40% of
its market value.

Monday’s projection of a $2.8 billion quarterly loss deepened anxieties that
banks and securities firms will suffer even more than expected as they slog
through the credit crisis.

The forecast of what would be Lehman’s first net loss since going public in 1994
- along with a flurry of other downbeat market news - caused financial stocks to
fall Monday. However, on Tuesday a number of them rebounded. Shares of Washington
Mutual Inc. (WM) rose 11% to $6.94, JPMorgan Chase & Co. (JPM) was up 4.1% to $39
and Wachovia Corp. (WB) rose nearly 11% to $21. Lehman’s shares recently fell
$1.98, or 6.7%, to $27.49 after falling 8.7% on Monday. Shares are now below the
$28 at which Lehman said Monday it plans to offer $4 billion in common stock in
addition to an offer of $2 billion in preferred shares that will convert to
common stock.

The continued decline reflects the fact that analysts and investors - who had
been hoping the worst was over - now seem to be resigned to a reality for Lehman
that likely includes more bad loans, souring securities and much-needed capital
infusions in the coming months.

In addition, some shareholders have grown increasingly leery of Lehman’s
management, which has bolstered its balance sheet with $12 billion so far this
year. In mid-March, Lehman Chief Financial Officer Erin Callan said the firm
“took care of our full-year needs” when it raised $1.9 billion through an
offering of preferred stock in February.

But in late March, Lehman raised another $4 billion. Although it said the money
wasn’t really needed, it wanted to allay fears about its capital position in the
wake of the sale of Bear Stearns to JPMorgan.

In a note to investors Tuesday, BernsteinResearch analyst Brad Hintz wrote that
Lehman still faces “significant challenges looking forward. It faces troubled
exposures that are still high and correlation risk, counterparty risk and roll
risk on all the hedges supporting its troubled asset positions.”

Still, Hintz said investors should recognize that Lehman “has a talented and very
stable management team that has led the company through difficult market
environments in the past. We believe that they will do so again.”

Meanwhile, Credit Suisse analysts wrote of the warning and capital raising:
“There’s not much more to say to sum this up than disappointing and
disconcerting…The retained exposure remains too large in so uncertain a
macroeconomic environment.”

Monday, Moody’s Investors Service responded to the news by lowering its outlook
on the bank’s credit ratings to negative, expressing concerns about Lehman’s
ability to manage risks. Meanwhile, Fitch Ratings cut its grade one notch, noting
the company’s “increased earnings volatility,” lack of securitizations and “the
level of risky assets exposing earnings to challenges in hedge effectiveness.”

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