June 10, 2008 / 2:04 PM / 11 years ago

UPDATE 1-RESEARCH ALERT-Brokerages slash '08 estimates on Lehman

(Recasts; adds details, share movement)

June 10 (Reuters) - Several brokerages slashed their 2008 estimates on Lehman Brothers Holdings Inc LEH.N on Tuesday, a day after Wall Street’s smallest major investment bank projected a worse-than-expected quarterly loss of $2.77 billion and raised $6 billion in capital.

Shares of the bank were down more than 6 percent at $27.67 in morning trade on the New York Stock Exchange.

Lehman sold 143 million shares, or $4 billion worth, at $28 a share and $2 billion of preferred stock that automatically converts to common shares in three years.

“The sheer size of such a dilutive capital raise will put serious pressure on the bank’s ability to deliver on meaningful earnings-per-share growth over the near to medium term,” Oppenheimer & Co’s Meredith Whitney said in a research note.

She said the most recent capital raise is 30 percent dilutive to existing shareholders. For 2008, Whitney now expects loss from the bank and maintained a “perform” rating on the stock.

“We underestimated how poorly marked Lehman’s assets were. In addition, the larger capital raise at meaningfully lower prices indicates that the company did not have, and potentially still does not have, a complete grasp of its exposures,” said Wachovia Capital Markets, which downgraded the stock to “market perform.”

Wachovia said Morgan Stanley (MS.N) and Goldman Sachs (GS.N) were more attractive as they were better capitalized, more diverse, and have experienced dramatically less dilution.

Credit Suisse, which called Monday’s announcement disappointing and disconcerting, said Lehman’s exposure to real estate inventories continued to remain too large and lowered its rating to “neutral” from “outperform.”

The following table lists the changes in estimates, rating and price target made on Lehman:



New Old Bernstein -$2.24 $3.20 Market perform Market perform $45 $65 Credit Suisse -$4.50 $2.75 Neutral Outperform

$35-$37 $55-$60 Deutsche Bank — — Buy Buy

$42 $49 Goldman Sachs -$2.10 $3.10 Buy Buy

$40 $58 Merrill Lynch -$2.65 $2.02 Buy Buy

$36 $37 Oppenheimer -$3.34 $1.58 Perform Perform

— — UBS -$2.84 $2.70 Neutral Neutral

$32 $42 Wachovia -$2.88 -$0.14 Market perform Outperform

— — (Reporting by Purwa Naveen Raman in Bangalore; Editing by Amitha Rajan)

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