February 12, 2008 / 11:21 AM / 11 years ago

UPDATE 1-RESEARCH ALERT-BofA cuts Lehman target, Q1 EPS view

(Adds analyst’s comments, background)

Feb 12 (Reuters) - Banc of America cut its price target and lowered its first-quarter earnings view on Lehman Brothers Holdings Inc LEH.N, citing worse-than-expected mark-downs and weaker-than-expected results in equity trading business.

Analyst Michael Hecht, who maintained his “neutral” rating while cutting his target by $5 to $60 on the stock, said he raised his net inventory mark-downs forecast to $1.25 billion, from his prior view of $700 million.

“With a $39 billion gross commercial mortgage-backed securities book, $37 billion in residential mortgage-backed security, $12 billion in commercial real estate and $4 billion in leveraged loan commitments, our forecast for marks could still prove to be too low,” Hecht wrote in a note to clients.

On Feb. 6, Lehman had said it expects to write down roughly the same amount of assets in the first quarter as it did in the third and fourth quarters of its 2007 fiscal year.

Lehman recorded an $830 million net write-down in its fourth quarter ended Nov. 30, and a $700 million net write-down in its fiscal third quarter.

“Given our expectation of slowing fixed income sales and trading for the industry over the course of the next few quarters, this will make it difficult for Lehman to show revenue, earnings-per-share or return-on-equity improvement,” Hecht said.

The analyst said Lehman continues to be the most fixed income sensitive firm, with the fixed income business accounting for more than 50 percent of revenue in 2007, despite successfully transforming from a one-business firm to a more diversified investment bank.

Hecht cut his first-quarter earnings view to $1.05 a share from his prior view of $1.49 a share.

Shares of Lehman closed at $58.25 Monday on the New York Stock Exchange. (Reporting by Tenzin Pema in Bangalore; Editing by Amitha Rajan)

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