Washington Post Staff Writers
Thursday, September 11, 2008; 7:18 PM
The Federal Reserve and Treasury are actively helping Lehman Brothers put itself up for sale, and officials are hoping a deal will be in place this weekend before Asian markets open on Monday, according to sources familiar with the matter.
The government is looking for an agreement that would not involve public money. A scenario that is emerging includes multiple suitors acquiring different pieces of the venerable investment bank, which has suffered staggering losses from its bets on real estate and mortgages.
Regulators have been in touch with Lehman on almost an hourly basis in recent days. And high-ranking officials including New York Federal Reserve President Timothy F. Geithner, Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke have been discussing a broad range of possibilities for Lehman, trying to determine what risks each outcome would pose to the financial system, the sources said on condition of anonymity because the details had not yet been finalized.
Securities and Exchange Commission Chairman Christopher Cox and Lehman chief executive Richard S. Fuld have also been speaking several times daily.
The effort comes just a few days after the Treasury and other federal regulators announced they were taking control of mortgage financiers Fannie Mae and Freddie Mac, in what was one of the largest government interventions in the private markets in history.
Lehman Brothers, which had been anxious to show it could weather the credit crisis that contributed to the firm's $3.9 billion third-quarter loss, said Wednesday that it would sell a majority stake in its investment-management division, slash its dividend and spin off about $30 billion of real estate assets.
The announcement did little to calm investors' concerns that Lehman, the smallest of the four major Wall Street investment banks, might suffer the same fate as former rival Bear Stearns, which was acquired by J.P. Morgan Chase in a deal regulators brokered in March after a bank run that shook the securities industry.
Lehman's share price fell nearly 40 percent to $4.22 at the end of trading today, continuing a precipitous fall from more than $60 a share as of February.
Goldman Sachs Group reduced its rating on the company, with one analyst saying that the restructuring "fell short of what was necessary," the Bloomberg news service reported, while Moody's Investor Services argued that the firm faced a cut in its credit rating unless it quickly enters a "strategic arrangement" with a stronger partner.
During a conference call with Lehman executives yesterday, analysts pressed for assurances that the $5.6 billion of write-downs that the firm disclosed for the quarter ended Aug. 31 -- primarily for declines in the value of assets tied to residential mortgages -- sufficiently reflected the severity of the troubles in the real estate market. The concern demonstrated the skepticism that remains even after last weekend's federal bailout of government-sponsored enterprises Fannie Mae and Freddie Mac, which play a vital role in supporting the mortgage and housing markets.
"There's still an element of doubt in terms of confidence of the financial players, and that's not going to go away just with the bailing out of Bear Stearns and the bailing out of the GSEs," said Michael Kastner, managing director of fixed income at Sterling Stamos Capital Management in New York. "What we're going to need to see is at least one quarter where the financial institutions don't show write-downs and do show profits and an ability to grow their business."
Staff writer Howard Schneider contributed to this report.
Source: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/11/AR2008091102580.html?referrer=email
