"That didn't last long," said Nils Pratley in The Guardian. Monday's stockmarket rally crumbled the next day as financial stocks came under pressure amid jitters over Lehman Brothers, Wall Street's fourth-largest investment bank. The stock tanked by 45% on Tuesday when talks with Korea Development Bank ended, which reinforced worries that Lehman will not be able to raise fresh capital to offset sharp declines in the value of its assets. It had notched up $8.2bn in writedowns and credit losses in the year to this week and its exposure to commercial and residential mortgage assets, as well as leveraged loans, is $55bn. Lehman has taken months to come up with a definite capital-raising plan and "that inaction has left Lehman at a nadir from which it will be very hard to rebuild confidence", said Peter Eavis in The Wall Street Journal.
Can Lehman restore confidence?
The group's earnings report this Wednesday, brought forward from next week, didn't do much to allay jitters. It lost $3.9bn in its third quarter, far more than expected, amid $7.8bn of writedowns, and provided no concrete updates on efforts to attract outside investors. It announced a plan to spin off most of its commercial real-estate assets and sell a majority stake in its asset management division.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
There was little in the news release that wasn't expected, said Henry Blodget on Clusterstock.com; the upshot is that management still appears to be in denial about "what a pickle the firm is in". Lehman's "incrementalism" won't satisfy Wall Street, Chuck Carlson of Horizon Investment Services told Bloomberg.com. Lehman reckons it can "come out of this independent and I'm not so sure that's going to be the case".
LEH: $7.70; 12m change -85%
-
ScottishPower launches half-price electricity at weekendsNews ScottishPower is offering 50% off electricity at weekends, which could slash hundreds off your bill. We look at who can get it and how to apply
-
Trump calls “tariff” the “most beautiful word in the dictionary”, but investors may disagreeDonald Trump has promised to slap Mexico, Canada and China with new tariffs on day one of his presidency. What does it mean for the economy and investors?
