The struggling investment bank Lehman Brothers (LEH) reported a loss of $5.92 a share Wednesday morning and said it plans to explore multiple options to help shore up its deteriorating balance sheet.
"This is an extraordinary time for our industry, and one of the toughest periods in the Firm's history," said Lehman Chairman and CEO Richard Fuld, in a release.
Lehman's quarterly profit loss was $3.9 billion on an estimated revenue loss of $2.9 billion. The company said it marked down $7.8 billion of investments this quarter.
The biggest change to the company's overall balance sheet was spinning off the vast majority of the company's commercial real estate into a new publicly-traded company.
Lehman's spin off will move $25-$30 billion in commercial real estate into a new company, to be called Real Estate Investments Global, by the first quarter of 2009. Lehman shareholders will hold shares of Lehman and the new company once the transaction is complete.
Fuld said the spinoff leaves the company with "limited" commercial real estate exposure.
The company is also planning on selling a majority interest in the company's highly-profitable investment management division - commonly known as Neuberger Berman. Lehman expects to sell 55% of the division, which will increase the firm's book value by as much as $3 billion.
Lehman said "explore strategic alternatives," which possibly alludes to the company trying to sell parts of the company or the entire firm.
The company would also cut its annual dividend to five cents a share from 68 cents a share, which they expect will save $450 million annually.
On a conference call with investors, Fuld emphasized that these actions are more than sufficient to make sure Lehman can survive through this financial and economic downturn.
"These actions have quickly re-risked and de-leveraged the firm," he said.
Despite the changes, the company's loss was worse than expected. Analysts interviewed by Thomson Reuters had expected Lehman to report a third-quarter loss of $2.91 a share based on revenue of $286 million.
The company decided to post earnings about a week ahead of its originally scheduled time because of Tuesday's massive selloff of Lehman stock.
Shares of Lehman were up 4% in early market trading.
The bank's tier-one capital ratio, a common statistic used by banks to gauge health, was at 11% for the quarter. That's up from 10.7% in the previous quarter.
On Tuesday, shares of Lehman brothers fell to a 10-year low of $7.79. Lehman was $53 a share one year ago. The selloff came after reports came that the Korean Development Bank had ended talks with Lehman regarding selling KDBa stake in the firm.
After the collapse of Bear Stearns in mid-March, the 158-year-old Lehman became the target of increasing concern that it might fail as well. But prominent financial analysts have noted that Lehman has access to the Federal Reserve discount window, something that Bear did not have, which may provide an important lifeline to the firm in these troubled times.
Goldman Sachs (GS), Morgan Stanley (MS), Merrill Lynch (MER), Citigroup (C) and JPMorgan Chase (JPM) said Tuesday the firms continue to act as a counterparty to Lehman in all their trades despite the Lehman's suffering business.
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