GO
Loading...

Lehman May Pre-Announce Results, Raise Capital

Executives at Lehman Brothers, the embattled securities firm, are weighing whether to pre-announce the firm's second-quarter results in an effort to dispel market rumors that the firm is facing a liquidity crisis, people close to the firm told CNBC.

Lehman Brothers
Bert van Dijk
Lehman Brothers

Lehman has traditionally released its earnings for the second quarter during the week of June 16, which is in two weeks. But people close to the firm say executives are considering whether to move those earnings up, possibly to next week.

The earnings announcement, these people say, would likely come in conjunction with a move by the firm to find new capital.

CNBC has learned that one new capital-raising option now being discussed is something similar to what's known as a "rights offering," whereby Lehman would approach existing shareholders and get them to buy stock in the company, possibly at a discounted price.

Lehman had no comment.

People close to the firm tell CNBC that Lehman is considering several ways to raise new money to address fears by some investors that the firm is under-capitalized and could be suffering from a liquidity crisis.

During its earnings announcement, the firm is expected provide details on its recent effort to "deleverage," or massively reduce the amount of money it borrows from outside sources to fund operations.

An internal Lehman memo obtained by CNBC shows that Lehman has reduced its levearge up to 25 percent over the last quarter. The memo also said that Lehman was buying back only small amounts of stock as part of a regular buyback program. Newspaper reports stated that the recent spike in shares of Lehman was the result of a recent massive buyback effort.

Lehman has been under a cloud since Bear Stearns imploded, and short-sellers began targeting the firm as the next major financial institution to implode. In recent weeks, the firm has been the target of short-seller David Einhorn, who has said the firm underestimated the amount of problem assets on its books and would have to writedown much of this bad debt, leading to fears of a liquidity crisis at the firm

Lehman has said that it isn't suffering a liquidity crisis. That said, the firm still faces an uncertain future. It's likely to announce a second-quarter loss. The reduction in leverage and risk-taking is likely to lead to lower profit margins for the firm.

Featured