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Sunday, November 22, 
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Highlights from Lehman Brothers earnings conference call

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Published September 10, 2008 at 8:59 AM
With its stock price in full meltdown, Lehman Brother Inc.'s management released the bank's third-quarter earnings report a week early, as well as its restructuring plans in hopes of shoring up confidence in the firm's viability.

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Lehman's CEO Richard Fuld outlined a number of steps the bank is taking to raise capital and limit future write-downs from its real estate assets.

Firstly, the annual dividend will be cut to 5 cents from 68 cents in order to preserve cash. The reduction saves Lehman $450 million annually.

The investment bank also plans to sell a majority stake -- approximately 55% -- of its Investment Management Division. Management said it's "expecting bids back very very soon" on the asset management auction and hedged on answering a question on whether it will be providing financing for the asset management sale.

The units will include the asset management (including the Neuberger Berman LLC business), private equity and wealth management businesses. It will not include Lehman's middle-market institutional distribution business and minority stakes in external hedge fund managers. Lehman reported a loss of $60 million from hedge funds.

Fuld attributed the investment bank's $3.9 loss to write-downs in the firm's mortgage and commercial real estate positions. The firm is moving to clear real estate assets off its books in a number of ways including:

  • Selling $4.0 billion of U.K. residential mortgage portfolio to BlackRock Financial Management, Inc., reducing their real estate exposure by 47% to $13.2 billion. The deal is expected to close in the next few weeks.
  • Spinning off real estate asset into a new publicly traded company to be named Real Estates Investments Global. Twenty billion dollars to $30 billion in assets are expected to be transferred into the new company. Lehman will provide 20% to 25% of the capital and provide financing for the remaining 75%. 
Fuld also addressed employee morale during the Q&A, saying "we've spent years building a company culture where people believe we come out OK. ... While there have been distractions due to the environment, that culture is holding them in. As far as [employee] turnover, I see no indication of anything that would be abnormal."

He also added that Lehman "remains committed to examining all strategic alternatives," signaling management's openness to a big cash infusion from an outside investor or possibly a takeover. - George White

See Dealscape post on Lehman earnings
See story on Lehman restructuring on TheDeal.com
See Dealscape post on Lehman's options
See Dealscape post on Lehman's brain drain



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