Battered Lehman sets out rescue plan

Embattled US investment bank Lehman Brothers outlined plans today to rescue its battered finances after reporting a third quarter loss of $3.9bn (€2.7bn).

The US group, which has sparked a global shares sell-off amid fears over its future, said it would sell a majority stake in its investment management arm and spin off commercial real estate operations to boost capital.

The group saw its shares plummet overnight to their lowest level in more than a decade on Wall Street amid investor concerns that the bank was running out of options to raise capital after a stake sale fell through.

The news hit stock markets hard and details of its losses today saw further heavy falls on London’s FTSE 100 Index, down more than 1.5% in mid-session trading.

Lehman said 1,500 jobs were being cut globally since the start of the third quarter.

The job cuts bring the total number axed since the end of November to more than 3,800.

Lehman, the fourth-largest US securities firm, has suffered badly in the wake of last summer’s credit crunch and the collapse of America’s sub-prime mortgage market.

The group has been hit by $8.2bn (€5.8bn) in write-downs and credit losses since the financial crisis began and today’s third quarter losses come after it made wrong-way bets on mortgage securities and other risky assets.

It has been trying to boost liquidity to repair its balance sheet by selling a stake in the group, but it emerged yesterday that talks over a possible deal with Korea Development Bank (KDB) had failed.

Lehman had hoped to find a major investor before announcing its third-quarter results, which were brought forward to today in the wake of yesterday’s share price collapse.

Investors have been anxious that Lehman could follow in the footsteps of smaller rival Bear Stearns, which nearly collapsed in March before an 11th hour sale to JP Morgan Chase.

But Lehman today put faith in its plans to shore-up capital reserves, with the stake sale in its asset management business alone estimated to provide a €3.7bn benefit.

Richard Fuld, chairman and chief executive of Lehman, said: “This is an extraordinary time for our industry and one of the toughest periods in the firm’s history.

“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 client-facing businesses and returning the firm to profitability.”

It will reduce total exposure to residential mortgages by 47% to $13.2bn (€9.3bn).

Globally the group has around 25,000 staff.