The bottom line on Lehman Bros.:
All the talk about a possible investment in Lehman from Korea Development Bank -- or anyone else -- is really beside the point.
Lehman is down about 75 percent for the year, while the Brokerage Index is down 30 percent. The reason Lehman has dramatically underperformed even its poorly performing peers this year is the large exposure they have to the worst performing parts of the market--residential mortgages, commercial mortgages, and leveraged loans.
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They need to reduce their problem portfolio substantially before anyone is going to dive in on a fundamental basis. Since the asset quality is not improving, they need to sell, even if at a loss.
How to do that? They have already raised capital, so they have some capacity to absorb losses from asset sales. The New York Times noted that they are said to be shopping their commercial mortgage-backed business, and perhaps $40 billion in commercial real estate. The crown jewel, their investment management division including Newberger Berman, may also be on the block.
The bottom line: Lehman can't wait for some white knight. They need to improve the balance sheet, now.
CNBC's Financials in the News:
-American Express , Wells Fargo
(Story: Warren Buffett Buying Financials)
-Bank of America , JPMorgan
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