Wednesday, April 9, 2008

Lehman Liquidates 3 Struggling Funds

The Wall Street Journal

Company Takes
$1 Billion in Assets
Onto Balance Sheet

Lehman Brothers Holdings Inc. liquidated three investment funds after stressed markets caused the funds' assets to decline in value, according to a quarterly financial filing Lehman made Wednesday with the Securities and Exchange Commission.

The New York investment bank ended up taking onto its balance sheet $1 billion of assets as part of the three funds' liquidation and purchased an additional $800 million of assets from other funds, according to the filing.

In an interview, a Lehman executive said the assets were from two money-market funds and one enhanced-cash fund, a type of vehicle designed to give investors more yield than simple money-market funds.

Lehman's shares took a beating after the filing was released. Its stock tumbled 7.2% to close at $40.54 in 4 p.m. New York Stock Exchange composite trading. Morgan Stanley and Goldman Sachs Group Inc. saw their stock drop 2.6% and 2.7%, respectively.

Lehman, which raised $4 billion in capital to bolster its balance sheet this month, said in the filing the three funds were "liquidated" and the assets of those funds were bought by the bank and put on its balance sheet.

The estimated value of those assets was $1 billion at the end of February, according to Lehman's filing.

Other banks, including Credit Suisse Group, have bailed out similar cash funds and have taken assets on the balance sheet and booked losses. Lehman has taken write-downs totaling $300 million on the $1.8 billion in assets it has taken on, according to a person familiar with the matter.

Lehman also said assets held by the three funds had fallen in value amid credit-market disruptions and ratings downgrades since the middle of last year.

"Due to market disruptions that occurred in the second half of the 2007 fiscal year and further deterioration in the 2008 quarter, certain investments held by the funds were either downgraded by rating agencies and/or experienced a decline in fair value," Lehman's filing said.

Lehman also took onto its balance sheet an additional $800 million in assets from other funds. Lehman describes these assets as "deteriorated" and said the cash paid to the funds for the assets was used to redeem investors and for new investments.

The disclosure about the troubled funds comes at a time when Lehman's stock has been under pressure because of investors' concern about the strength of its balance sheet.

It is unclear whether Lehman originally had any of its own money in the three funds it closed. The investment bank also didn't say how much the assets in the funds declined in value or what the funds' original size was.

No comments: