Transcripts

Lehman Brothers Rebuilds With Top Management Shake Ups

PAUL KANGAS: A surprise management shakeup at Lehman Brothers today. The investment firm ousted its high profile chief financial officer Erin Callan and Chief Operating Officer Joseph Gregory, although both will remain with the company. Lehman is already dealing with a massive earnings loss expected next week and a sharp slump in its stock price. Suzanne Pratt takes a look at what's in store for the legendary Wall Street firm.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lehman's executive reshuffling is viewed as an attempt to calm shareholders and silence speculation about additional losses. The firm's future has come into question this week, as Monday it pre-announced a second quarter loss of nearly $3 billion -- its first since going public in 1994. On top of that, it got a $6 billion cash infusion to offset the loss. That's after management repeatedly said it didn't need to raise capital. Keefe, Bruyette & Woods analyst Lauren Smith, whose firm has done investment banking with Lehman and personally owns the stock, doesn't believe Lehman will collapse, but she's concerned about its financial condition.

LAUREN SMITH, BANKING ANALYST, KEEFE BRUYETTE & WOODS: I can't say to you with complete conviction that there aren't perhaps more write-downs to be taken or that Monday when they report final earnings, that I have to at least put the possibility out there that the loss will be greater than the pre-announcement.

PRATT: The lack of confidence in Lehman's leadership has existed for several weeks and it's compounded by the fact that Bear Stearns crumbled in March following similar rumors. The Federal Reserve then stepped in to negotiate the sale of Bear to JPMorgan Chase. And while Lehman's troubles have breathed new life into takeover rumors, some analysts are not convinced the firm will take that path.

SMITH: There are not a lot of pristine, balance sheet financial companies right now. And even though their market cap has fallen considerably, it's still a $13 or $14 billion market cap organization. So, it's not easily digestible.

PRATT: Under the weight of all its troubles, shares of Lehman have fallen 65 percent this year. Most other financial stocks also remain under pressure with few analysts recommending investors increase their exposure to the sector. Money manager Manny Weintraub says that's because the credit market crisis is a long way from over.

MANNY WEINTRAUB, MANAGING DIRECTOR, INTEGRE ADVISORS: There are plenty of shoes to drop in this crisis. It's not going to end even with Bear Stearns being thrown to the wolves or if Lehman Brothers restructuring as they're doing. It ends when the underlying asset which is the American home, stops going down in price.

PRATT: In addition to Lehman, Goldman Sachs and Morgan Stanley are scheduled to report quarterly results next week. Those numbers are expected to be weak as the firms continue to deal with the fallout from bad bets on mortgage-related securities. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.