Lehman, the nation’s fourth-largest investment bank, said it expects a $3.9 billion loss in the third quarter raising total losses to $6.5 billion so far this year.
Stock for Lehman — which was a major underwriter of mortgage-related securities during the credit boom — lost nearly half their value on Tuesday as investor confidence plummeted and options for the ailing securities giant seemed to dwindle. Lehman shares have dropped more than 80 percent this year, according to the Associated Press.
As part of the package of moves designed to boost confidence on Wall Street, Lehman will sell 55 percent of a portion of its prized investment management division, including asset management unit Neuberger Berman and the private equity and wealth management businesses.
It said it was in “advanced discussions with a number of potential partners” on the sale. Lehman also announced plans Wednesday to spin off $25 billion to $30 billion of its troubled commercial real estate holdings into a new public company. The company also slashed its dividend to 5 cents from 68 cents to save $450 million a year.
“This is an extraordinary time for our industry, and one of the toughest periods in the firm’s history,” the chief executive, Richard S. Fuld Jr., said in a statement. “The strategic initiatives we have announced today reflect our determination to fundamentally reposition Lehman Brothers by dramatically reducing balance sheet risk, reinforcing our focus on our client-facing businesses and returning the firm to profitability.”
The bank said the spinoff of the commercial real company, Real Estate Investments Global, should be completed by the first quarter of 2009.
“Taken together, these actions will quickly de-risk and resize the firm,” Fuld told investors on a conference call, according to AP.
“We will have what we believe to be a strong and clean balance sheet that will allow us to focus on our core client businesses. In addition, we remain committed to examining all strategic alternatives to maximize shareholder value,” Fuld said.
Shares rose 7.8 percent in morning trading on the news Wednesday, reflecting wariness that the announced moves may not be enough.
“What you are dealing with is a confidence issue,” Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, N.J., told Reuters. “What people are saying is that there has been no resolution of the problem.”
The credit-market meltdown has led to more than $500 billion in writedowns and credit losses since it began a year ago, reported Bloomberg News. Lehman was the worst performer on the 11-company Amex Securities Broker/Dealer Index.