Lehman Brothers Holdings
Inc, an investment bank beset by rumors of not having enough funding, said it
plans to raise $3 bln of capital to quash questions about its stability.
Lehman’s shares fell 2.8% to
$36.60 in after-market trading after the planned convertible preferred share
offer was announced, since it could result in more shares being issued.
Chief Financial Officer
Erin Callan told Reuters the deal was meant to end questions about the bank’s
balance sheet, and the capital was not needed to offset the impacts of
write-downs or losses.
“We have not changed
our view on our real need for capital, but we have changed our view from a
perception perspective,” Callan told Reuters.
Questions about whether
Bear Stearns Cos Inc had enough capital were enough to force what was once the
fifth-largest
investment bank to sell itself for a pittance. Lehman Brothers is the
fourth-largest
investment bank, and fears about its stability have helped push down its share
price more than 40% since February.
The rationale for the deal
struck some investors as odd.
“This just makes me
scratch my head. Why do this if you don’t have to?” said Matt McCormick,
portfolio manager at Bahl & Gaynor Investment Counsel in
The global financial sector
is increasingly starved of capital after sustaining more than $200 bln of
losses from subprime mortgages and other assets.
But Lehman says it has more
than enough access to funds, and several large institutional investors have
agreed to buy at least $2.5 bln of the convertible preferred offering. Smaller
funds looking at buying into the deal said demand is strong. Lehman said it can
sell up to another $450 mln of additional convertible preferreds to meet extra
demand.
A person familiar with the
matter said investors had placed orders for more than $10 bln of securities in
the sale, and that Lehman may ultimately sell $4 bln of securities.
Mike Holland, who oversees
more than $4 bln at Holland & Co, is not trying to buy the convertibles,
but says if the sale goes well, it could put fears about Lehman to rest.
“If investors thought
there were real problems at Lehman, you couldn’t find buyers for $3 bln of
securities at any price,” he said.
