Lehman Brothers Holdings shares rebounded sharply on news that a big bond fund manager is buying the firm's debt and some positive comments from other Wall Street firms.
Investment manager Loomis Sayles, one of the biggest and most widely followed U.S. bond fund managers, has been buying Lehman Brothers debt over the past several days and is not shy about transacting with the investment bank, its vice chairman told Reuters.
"The credit is good at Lehman," said Dan Fuss, vice chairman of Boston-based Loomis Sayles, which oversees more than $100 billion in fixed-income securities.
Fuss added that he considers Lehman common shares , which fell 18 percent over three days, to be "dirt cheap."
Lehman also got a boost after Merrill Lynch upgraded its shares to a "buy" from "underperform" and Lazard's CEO praised Lehman, saying "(CEO) Dick Fuld is very able."
Fuss has been buying Lehman corporate debt for several days and bought some of the bank's convertible preferred securities on Tuesday, saying they represent a good long-term value, he told Reuters in an interview.
He declined to provide amounts of what he has purchased.
Fuss is also buying corporate bonds of other investment banks, he said.
"We have been buying other financial institutions' debt as well as Lehman's," said Fuss, who is also co-manager of the $18 billion Loomis Sayles Bond Fund.
"We have no hesitation whatsoever at all in dealing with Lehman," he said, adding: "They are a fine firm and financially strong."
Earlier, CNBC reported that Lehman has taken steps to sell off some of the riskier assets on its books and to eliminate its proprietary trading in a further effort to cut debt its problematic balance sheet,
The moves to cut balance sheet risks is part of an effort by Lehman CEO Fuld to bring down the amount of risk in Lehman's balance sheet by slashing borrowing, layoffs and possibly raising new capital.
The moves involving proprietary trading risks and unloading risky assets such as mortgage related bonds that Lehman holds is a further step in this process. Senior officials at Lehman say they have already sold as much as $100 million in troubled assets as part of Fuld's deleveraging plan.
People with knowledge of Lehman's activity say that firm's officials have met with potential buyers of the securities in recent weeks including BlackRock , which has purchased risky assets on the cheap from other firms like UBS in the hopes of selling the securities for profit at a later date.
Sources with knowlege of Lehman's proprietary trading activities say the firm has for at least the last week, not taken new positions on at least some of its trading desks and scaled back activity on other desks dramatically while eliminating some desks entirely.
A spokesman for Lehman had no comment.
Lehman on Tuesday said that it has not accessed the Federal Reserve's discount window in an attempt to raise funds.
"We did not access the primary dealer facility (Fed Window) today," Lehman Treasurer Paolo Tonucci told CNBC. "The last time we accessed the facility was on April 16 for testing purposes."
Tonucci said Lehman ended the first quarter with liquidity of $34 billion and finished the second quarter well above $40 billion.
But some analysts said they expected there was no urgent need for Lehman to further bolster its balance sheet.
"In our view, there is no immediate need to raise equity capital, and the company would only take this painful step in an effort to cease the drumbeat of negative perceptions," David Trone, an analyst for Fox-Pitt, Kelton, wrote in a research note.
Separately, the Wall Street Journal is reporting that Lehman began using its capital to buy back its shares in the wake of its falling stock, citing a person familiar with the matter. It is unclear how much stock Lehman bought, the Journal said.
Lehman's stock took a beating Tuesday, closing 9.5 percent lower. But the firm regained its footing in afterhours trading, which saw its stock climb 10.5 percent.
The Journal also reported that Lehman may be looking overseas for a strategic partner. The Wall Street firm has raised capital from an existing base of U.S. shareholders. But this week according to the Journal, it reached out to overseas investors, including at least one in South Korea.
-- Reuters contributed to this article