NEW YORK (Reuters) - Lehman Brothers Holdings Inc <LEH.N> has no need to raise capital and would only do so if the right market opportunity presented itself or if the firm thought it would help investor perceptions, a source familiar with the situation said on Tuesday.
By Dan Wilchins
NEW YORK (Reuters) - Lehman Brothers Holdings Inc <LEH.N> has no need to raise capital and would only do so if the right market opportunity presented itself or if the firm thought it would help investor perceptions, a source familiar with the situation said on Tuesday.
The source said a move to raise capital was only one of "dozens" of options for the bank.
Some analysts agreed there was no urgent need for Lehman to further bolster its balance sheet.
!ADVERTISEMENT!"In our view, there is no immediate need to raise equity capital, and the company would only take this painful step in an effort to cease the drumbeat of negative perceptions," David Trone, an analyst for Fox-Pitt, Kelton, wrote in a research note.
But Lehman shares were down nearly 6 percent in morning trading, making it the top decliner among brokerage stocks and bringing its fall so far this year to about 50 percent. By comparison, the Amex Securities Broker Dealer index <.XBD> is down 21 percent in 2008.
Lehman Brothers spokeswoman Kerrie Cohen declined to comment on a report in The Wall Street Journal that Lehman was considering raising billions of dollars in fresh capital.
The newspaper quoted analysts and Wall Street executives as saying Lehman was likely to seek $3 billion to $4 billion. The Journal said the plans suggest the investment bank will post a loss for the quarter ended in May deeper than the $300 million that various analysts have been expecting.
Lehman may issue common stock, diluting current shareholdings, and will probably reveal its capital plans when it reports quarterly results the week of June 16, the newspaper said.
Lehman's market value is about $18.7 billion, based on Monday's closing stock price of $33.83, Reuters data shows.
The Journal report also sparked selling in the U.S. dollar and weighed on Asian stocks, while boosting demand for safe-haven government bonds such as U.S. Treasuries.
"The developments are a reminder to markets that the effects of the credit crisis continue to reverberate around markets," Zurich-based UBS currency strategist Geoffrey Yu wrote in a note to clients.
According to recent analysts' research notes, Lehman has been hurt by hedges used to offset losses in various securities.
Second-quarter losses from asset write-downs and ineffective hedges are likely to top $2 billion, the Journal said. The bank will also realize losses tied to job cuts, it said, citing a person familiar with the matter.
Lehman in May decided to cut around 1,300 jobs, or nearly 5 percent of its work force, a person briefed on the matter said. It had laid off more than 5,000 people since the middle of 2007.
Lehman is the smallest of Wall Street's four major investment banks, following JPMorgan Chase & Co's <JPM.N> purchase this weekend of Bear Stearns Cos.
Lehman shares were down $1.98 to $31.85 in morning trade on the New York Stock Exchange.
CEO WAS CONFIDENT IN APRIL
Financial institutions globally have suffered more than $350 billion of write-downs or credit losses tied to risky subprime mortgages and other debt.
Many have raised billions of dollars of capital, including Merrill Lynch & Co <MER.N> and Morgan Stanley <MS.N>.
Standard & Poor's on Monday cut its credit ratings for Lehman, Merrill and Morgan Stanley, saying write-downs "may continue to depress earnings."
In April, Lehman Chief Executive Richard Fuld had said "the worst is behind us," in light of improved client trading activity and investor sentiment.
Two months ago, Lehman sold $4 billion of preferred shares, a stock-bond hybrid. In early May, it sold $2 billion of 30-year bonds.
Lehman is no stranger to worries about its cash problems. In 1998, Fuld had to fight off concern about Lehman's survival after the Long Term Capital Management hedge fund collapsed.
Raising new capital may help Lehman reassure investors who have in recent months questioned whether it might suffer the same fate as Bear.
Since the Federal Reserve began allowing investment banks to borrow directly, Lehman has accessed overnight financing several times, and fears of a broad market collapse have lessened.
Still, the credit crisis is expected to keep haunting markets. "Credit turmoil should persist, though the market reaction might be less pronounced," said Thomas Lam, senior Treasury economist with United Overseas Bank in Singapore.
Last month, David Einhorn of Greenlight Capital Inc, who has sold Lehman shares "short" because he expects a decline, told investors that Lehman should raise large amounts of capital because it has not taken enough write-offs for bad assets.
(Additional reporting by Varsha Tickoo and Tenzin Pema in Bangalore, Christian Plumb in New York, Satomi Noguchi in Tokyo and Kevin Plumberg in Hong Kong; editing by Dave Zimmerman and John Wallace)
