Lehman to Survive But Make Little Money: Bove
Lehman Brothers, which is seeking $6 billion in fresh capital to shore up its battered balance sheet, will survive but not make a lot of money, a well-known Wall Street banking analyst said Monday.
The Federal Reserve will not allow a takeover of Lehman Brothers Holdings , and it is doubtful any bank would want to buy the bank, the smallest of Wall Street's investment banks, said Richard Bove, an analyst with Ladenburg Thalmann & Co, a Miami-based brokerage and investment bank.
Lehman only has about $25 billion in equity to back up a balance sheet of $800 billion, Bove said.
"I don't know who would buy them. No bank would buy them," Bove said at the Reuters Investment Outlook Summit in New York. "Any bank that took them over would immediately have problems."
"The Fed is not going to allow a takeover of Lehman," he said.
Lehman said it would raise $6 billion in a rights offering and said it expects to post a $2.8 billion loss when it reports-second quarter earnings.
"They're going to survive" but not make a lot of money, Bove said.
Lehman's problem — along with other investment banks — is that in the fallout from subprime mortgages the fees that investment banks made from that and related businesses have dried up, the analyst said.
"There isn't a business there at the moment," Bove said.
Investment banks can try to recoup business by going overseas in commodities, currencies, wealth management and private equity — but it won't be enough, he said.
They "will be scraping around at very low earnings levels for the next several years," Bove said.
Lehman's troubles can be attributed to management, which ballooned the bank's balance sheet as it tried to make money on very thin spreads through large volume, Bove said.
Efforts to buy Lehman shares on the open market was a "bush league thing" — or second-rate move — to shore up the bank's tumbling stock price and amounted to "what a junior trader would do to show bravado," he said.
"They screwed up. But the fact of the matter is that this firm is sound, it's well managed and will survive," Bove said.
Chief executive Richard Fuld will also survive, even though he made mistakes during this crisis, he said.
"He's a brilliant guy; most of the things he's done have been successful," Bove said.