Lehman May Release Results Early as Stock Plunges

Lehman Brothers Holdings management is considering moving up the release of its third-quarter earnings, which had been scheduled for next Thursday, according to people inside the firm.

AP

Lehman shares fell as much as 40 percent to their lowest level in nearly a decade Tuesday on growing concern that Wall Street's fourth-largest investment bank would be unable to raise needed capital in the wake of huge losses.

The stock fell to its lowest level since the depths of the 1998 Asian debt crisis, when Lehman was buffeted by questions about its financial strength.

Still, Sanford C. Bernstein analyst Brad Hintz said the selloff doesn't suggest any credit or counterparty risks at the embattled investment bank.

Hintz continues to rate Lehman shares as "market perform" and told clients that while there is widespread anxiety about Lehman's asset losses and ability to raise needed capital, the U.S. government will not let Lehman collapse.

"Let's recognize that the Federal Reserve is supporting the funding of four 'surviving' large capitalization brokers, so the sharp decline in Lehman stock today is an 'equity issue,' not a credit or counterparty issue," he wrote.

The Fed, which stepped in to keep Bear Stearns from failing in March, does not want to risk "an avalanche of unquantifiable systemic risk" triggered by a Lehman failure, said Hintz.

Since March the Fed has provided primary dealers, including Lehman, access to credit from its discount window.

Hintz observed that Lehman shares came under pressure as investors noticed that the bank had stopped issuing bonds off a shelf registration.

That only added to the uncertainty surrounding the bank.

"We believe this move is a sign that the company has some material nonpublic information that the firm doesn't want to disclose in a bond prospectus," Hintz said.

Lehman, Hintz added, on Monday announced it would report third-quarter earnings as well as "key strategic initiatives" next week.

Standard & Poor's, meanwhile, said it may lower Lehman's ratings based on the decline of its share prices and its ability to raise capital.

On Monday, Lehman said it planned to release the results and the details of strategic initiatives aimed at recapitalizing the firm on Sept. 18.

The earnings report is widely expected to show large losses connected to the investment bank's soured real-estate investments. Lehman lost $2.8 billion in its second quarter.

Meanwhile, in another likely sign of heightened investor concern about Lehman's capital position, the cost of protecting Lehman debt with credit default swaps rose to 450 basis points, or $450,000 annually for five years to protect $10 million of debt, from 325 basis points on Monday, according to Phoenix Partners Group.

As previously reported, it has grown increasingly likely that Lehman will be selling its asset management division, including its crown jewel Neuberger Berman, according to people familiar with the matter. Lehman was hoping to avoid selling all or part of Neuberger, one of its prized assets.

Lehman has been cobbling together a bold plan to remove tens of billions of dollars in bad debt, composed of subprime loans and commercial real-estate investments, by spinning off the soured investments currently on its books into a separate company.

The separate company has many benefits for Lehman because, under the proposed structure, the bad debt would be off the firm's balance sheet removing an uncertainty that has crushed shares of Lehman from most of the year.

In addition, under the plan Lehman shareholders and other investors could own a piece of the new company composed of the real-estate investments. So if the value of these securities and holdings eventually recover, Lehman investors would benefit.

—Reuters contributed to this report.

© 2009 CNBC