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The Honolulu Advertiser
Posted on: Wednesday, September 10, 2008

Shares plunge to 10-year low at embattled Lehman Bros.

By Joe Bel Bruno
Associated Press

Hawaii news photo - The Honolulu Advertiser

Lehman Brothers shares plunged to their lowest level since the financial meltdown of 1998, amid concerns about the investment bank's financial position. The stock fell $6.36, or 45 percent, to $7.79.

ASSOCIATED PRESS FILE PHOTO | May 2008

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NEW YORK — Lehman Brothers Holdings Inc. shares plunged to their lowest level in more than a decade yesterday amid investor concerns that the battered investment bank is running out of options to raise capital.

The nation's fourth-largest securities firm is scrambling to raise enough money to survive the global credit crisis. Lehman has been trying to find a major investor, and could possibly sell part of its investment management or real estate holdings for a quick infusion of cash.

However, word that high-level talks with state-owned Korea Development Bank broke down caused already anxious investors to dump shares of the embattled investment bank. Wall Street remains skittish about financial stocks since the near-collapse of Bear Stearns Cos. in March.

The stock plunged $6.36, or 45 percent, to $7.79 — the lowest level Lehman's stock has hit since the financial meltdown of 1998 triggered by the collapse of hedge fund Long-Term Capital Management. It staged a slight recovery in after-hours trading after rivals Goldman Sachs Group Inc., Merrill Lynch & Co., Morgan Stanley and JPMorgan Chase & Co. confirmed they are still trading with Lehman.

Uncertainty about Lehman's financial position has prompted speculation that the investment bank might announce quarterly results early, a move that could also stem the stock's slide.

Lehman needs to boost liquidity after suffering $8.2 billion in write-downs and credit losses since the financial crisis began last year, analysts said. Lehman had hoped to find a major investor before announcing third-quarter results Sept. 18, when it is widely expected to take another loss.

"At that point, we expect more clarity around where they are in terms of both earnings for the quarter and any strategic initiatives," said Prashant Bhatia, an analyst with Citigroup. "A pre-announcement will likely be a catalyst to stabilize the stock."

Lehman could report a loss of between $2 billion and $4 billion, according to analysts. That would be on top of a $2.8 billion second-quarter loss, which was the first since Lehman spun off from American Express Co. in 1994.

In addition, Lehman Brothers is working to quell criticism from major credit rating agencies. Yesterday, Standard & Poor's put Lehman's debt on CreditWatch Negative because of the steep stock decline, which means the agency may lower the company's ratings within months. Such a move would increase the amount of money Lehman pays to issue debt.

The steep decline in Lehman's shares began shortly after Dow Jones Newswires reported that the head of South Korea's financial regulator said talks about a possible investment had ended. Lehman Chief Executive Richard Fuld had been in negotiations with Korea Development Bank for several weeks about a capital infusion.

Korea Development Bank confirmed today there will be no further talks.

KDB said in a statement that it "ended negations at this time due to differences in transaction terms with Lehman and in consideration of the domestic and international financial market situation."

It did not elaborate.

Mark Lane, a spokesman for Lehman Brothers, declined to comment.