Lehman’s Earning, Or Lack Thereof

Lehman Brothers (LEH) told us to expect the worst and they were right. The company lost an astonishing $2.8 billion last quarter. Revenues came in at negative $688 million. It’s hard to make a profit when your revenue is in the red. The company got rid of $147 billion in assets last quarter.

Lehman’s leverage ratio — how many times assets exceed a firm’s equity — fell to 24.3 from 31.7 at the end of the first quarter and 28.7 last year. A week ago, Lehman predicted the ratio would slide to 25. The higher the number, the more debt the firm has taken on to fund those assets.
Lehman’s capital-markets business posted negative net revenue of $2.4 billion as fixed-income revenue fell to negative $3 billion. Both were in line with projections.
Equities revenue dropped 65% from a year earlier and 57% from the fiscal first quarter to $600 million, amid $300 million in losses on private equity and investments in which the bank was a principal.
The investment-banking business saw net revenue slump 25%. But investment-management revenue was flat at $800 million, worse than the company’s projection last week for a 13% rise to $900 million.
The brokerage said it has a liquidity pool of $45 billion, up 32% from the prior quarter.
Lehman said it reduced its exposure to residential mortgages, commercial mortgages and real estate investments by about 20% in each asset class during the quarter.

From the end of 1996 to the end of 2006, shares of LEH climbed from $7.69 (adjusted for two 2-for-1 splits) to $78.12. That’s a 10-fold gain in 10 year, and it doesn’t include the modest amount from Lehman’s dividend.
The company just made a high-profile change in the executive suites but I really don’t think that’s what needed right now. Moody’s, for their part, recently downgraded the company. Naturally, this comes after the stock has plunged 75%. I doubt Lehman will able to continue as a separate entity.

Posted by on June 16th, 2008 at 9:26 am


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