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After watching shares get nearly chopped in half Monday, Lehman Brothers (NYSE: LEH ) rushed its quarterly earnings report up a week in a desperate attempt to show the world that its future isn't as up-in-the-air as investors anticipated. But if the developments outlined in the report are the best Lehman can give us, I'm not sure why it bothered.
The good, the bad, the ugly
The preliminary third-quarter loss is now $3.9 billion, or $5.92 per share, down from a profit of $1.54 per share last year. Unfortunately, it seems like investors basically yawn at quarterly losses these days. The real questions on investors' minds are capital-raising concerns, and from here, the news isn't as hunky-dory as most would like.
Lehman plans to spin off the "vast majority" of its commercial real estate assets in a new company issued to shareholders, expected to be completed in the first quarter of next year. The new company -- Real Estate Investments Global -- will have a few characteristics that differentiate it from Lehman, which should help buffer some of the losses. Most importantly, REIG will account for the assets on a hold-to-maturity basis, rather than the write-off-inducing mark-to-market accounting Lehman must use.
The other big news is that Lehman plans to sell around 55% of its investment-management division, including asset management, private equity, and its prized Neuberger Berman wealth management unit. The move could add around $3 billion in tangible book value -- something Lehman desperately needs to stave off naysayers and short-sellers.
Here's why shares hardly budged
Shares bounced around in a tight range on the news, up around 2% as I write, but that's peanuts compared to the 45% plunge Lehman endured yesterday. Why did the seemingly good news fail to spark a nice rebound rally? I have a few thoughts.
For one, the news was peppered with a tantalizing amount of "expected" and "planned" undertakings, but nothing has yet to be executed. Sound familiar? The whole reason shares plummeted yesterday was because an "expected" deal with a Korean bank fell through, leaving investors wondering whether Lehman will ever pull itself out of this rut.
While other financial companies like Merrill Lynch (NYSE: MER ) , E*Trade (Nasdaq: ETFC ) , and Washington Mutual (NYSE: WM ) haven't been shy about addressing their faults and taking actionable measures, many have chided Lehman CEO Dick Fuld for sucking his thumb, pushing critics aside, and insisting that his firm will live to see another day.
Hence, shareholders are left with the same questions they were yesterday: You plan on selling real-estate assets? To whom? You plan on selling the investment management business? To whom? You plan on shoring up the balance sheet? When?
Until those questions get hammered out with terms from actual buyers, Lehman's stuck in the same ol' rut it's been in for the last year.
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