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 Lehman Brothers Inc. isn't just getting pummeled by investors and the media, it's also getting a fair share of shots by analysts who have some pretty insightful advice for CEO Richard Fuld. Their opinion basically can be summed up in one sentence: It is imperative you make a move and sell some assets now or Lehman will fail like Bear Stearns Cos. The Deal's Vipal Monga and other journalists did a great job chasing down analysts for quotes.
Here are some statements from analysts and experts voicing their thoughts on Lehman Brothers.
Wachovia senior analyst Matt Burnell said in his report, "In our opinion it is time for Dick Fuld and LEH to definitively respond to the rumors and speculation that has plagued it essentially since the demise of Bear Stearns in March and reached a fevered pitch in recent months." Meredith Whitney of Oppenheimer & Co. said in a note, "Revenues are weak across all businesses. Expenses are down, but clearly not enough to offset revenue declines. Although the announced initiatives are clearly a step in the right direction, we believe that Lehman still faces challenges to earnings given a lower capital markets environment for the next several quarters and further write-downs to risk exposures." David Trone of Fox-Pitt Kelton Cochran Caronia Waller said in a report, "LEH has fallen precipitously ... and at least one credit rating agency has put Lehman's counterparty ratings on neg. watch. As a result, mgmt now may have to act quickly to avoid a panic, and a subsequent Bear Stearns-like fate." He also told Reuters, "The management would surely be willing to pay more than a strategic buyer as they know Lehman's 'problem' assets better than anyone." Trone believes that Lehman needs $5 billion in net capital, and deal scenarios would have current shareholders getting $10 to $15 a share, according to the report. In the same Reuters report, Banc of America LLC's Michael Hecht said, "the 'best case' scenario ... is Lehman 'limps along' and gets by with a partial reduction of its troubled asset exposure by raising dilutive capital and selling a portion of its investment-management unit." In another report by Reuters, Doug Roberts, chief investment strategist at Channel Capital Research, said, "What you are dealing with is a confidence issue. What people are saying is that there has been no resolution of the problem." In the same Reuters report, Bill Fitzpatrick, an analyst at Optique Capital Management, said, "These are last-ditch measures. They've tried to raise capital from sovereign wealth funds and others, and that didn't work. Now they're selling businesses, which destroys future earnings power." It will take someone with deep pockets and possibly government backing to attempt a takeover, as with J.P. Morgan Chase & Co.'s purchase of Bear Stearns earlier this year, Michael Farr, president of investment management company Farr, Miller & Washington, told Reuters. "It's not so much the price as we found out with Bear Stearns," Farr said. "It's what are you really buying -- what sort of potential liabilities, what type of counterparty risk could you be forced to assume. That is anything but transparent." Ladenburg Thalmann & Co.'s Richard X. Bove said in a note, according to Reuters, "Clearly the company does not believe that it has a serious balance sheet problem and it simply refuses to take what it believes are fire sale prices for its key assets." "These guys aren't going to fail for a funding run because of the Fed's backing," Brad Hintz of Sanford C. Bernstein told Forbes. "The central bank cannot allow a broker to fail. To do so releases an avalanche of unquantifiable systemic risk into the global bond markets. And the Federal Reserve will never allow this to happen." Either way Lehman has a ton of work to do over the next few months. - Maria Woehr Categories Deal Video
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