June 17, 2008 / 7:20 AM / 11 years ago

UPDATE 3-Analysts see increased losses at Lehman this year

(Recasts; Adds Deutsche Bank and Oppenheimer analyst comments, background and updates share price)

By Tenzin Pema

BANGALORE, June 17 (Reuters) - Lehman Brothers Holdings Inc LEH.N may face growing losses this year, after the fourth-largest U.S. investment bank posted its first quarterly loss as a public company, several analysts said.

Lehman shares fell more than 4 percent to $26.01 in late morning trade on the New York Stock Exchange, even as analyst Richard Bove upgraded the stock to “neutral” from “sell,” saying the investment bank had settled uncertainties related to its balance sheet after raising capital.

The Ladenburg Thalmann & Co analyst, however, said Lehman’s earnings outlook remained uncertain and forecast a 2008 loss for the company. Bove also said the company’s hedging policy still looked ineffective and warned of further writedowns on its real estate-related financial instruments.

Mike Mayo, an analyst at Deutsche Bank, expects Lehman to take $2 billion more in writedowns, mainly on its commercial real estate portfolio. He estimates that Lehman has incurred cumulative real estate losses of $14 billion.

In separate research notes, Oppenheimer & Co analyst Meredith Whitney and Banc of America Securities analyst Michael Hecht raised their 2008 loss estimates.

On Monday, Lehman posted its first ever quarterly loss, but shares rose as much as 9 percent after Chief Executive Richard Fuld expressed confidence in the company. Fuld said Lehman’s franchise and capital position were strong.

Last week, Lehman raised $6 billion in capital in its latest move to shore up its capital base. The company had made a $4 billion convertible preferred share offering in April, apart from a $1.9 billion preferred share offering in February.

“The size of the recent capital raise puts serious pressure on Lehman’s ability to deliver on meaningful earnings-per-share growth over the near to medium term,” Oppenheimer’s Whitney wrote in a note to clients.

Whitney widened her 2008 loss estimate to $3.70 per share from her earlier estimate of a loss of $3.34 per share. She maintained her “perform” rating on the stock.

“While Lehman has been towards the front of industry as far as balance sheet de-leveraging, questions around appropriateness of marks, size of remaining exposures and recent management changes keep us on the sidelines,” Banc of America’s Hecht said.

Hecht widened his 2008 loss estimate to $3.69 a share from his prior view of a loss of $3.28 a share, saying markdowns on troubled assets continued to remain an area of concern for the rest of the year. He rates Lehman “neutral” and has a price target of $23 on the stock.

Analyst Bove forecast a loss of $3.19 per share for 2008, compared with his prior estimate of a profit of $2.07 per share. Bove cut his price target on the stock to $30 from $35.

Through Monday, Lehman shares have plunged nearly 60 percent this year, compared with a 20 percent drop in the Amex Securities Broker-Dealer Index .XBD. (Editing by Anil D’Silva)

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