Page last updated at 23:12 GMT, Thursday, 11 September 2008 00:12 UK

Investor fears hit Lehman shares

Lehman Brothers headquarters
Investors are losing confidence in Lehman Brothers

Shares in troubled US bank Lehman Brothers have plunged again on concerns over the future of the bank.

Lehman announced the biggest loss in its history on Wednesday and investors remain unconvinced by the bank's plans to strengthen its finances.

One analyst said the firm was "limping along" and "may or may not make it".

Lehman's shares fell 42% to $4.22 but ended above the day's low amid speculation that the firm could be taken over by a rival investment bank.

The Wall Street Journal reported that several parties were in talks to take over Lehman Brothers, including Bank of America.

"We thought that getting news out of Lehman was going to clear the dark cloud but it really doesn't," said Arthur Hogan, chief market analyst at Jeffries.

"It just leaves us with a company that's limping along, that may or may not make it," he added.

Bad bets

Lehman is the latest US financial institution to fall into difficulties. Earlier this week, the Treasury was forced to bail out US mortgage giants Freddie Mac and Fannie Mae.

Finance is a confidence game
Andrew Busch, BMO Capital Markets

And in March, Bear Stearns was sold off cheaply to JP Morgan after its business collapsed.

"The concern here is that the same thing happens with Lehman, that the business deteriorates so quickly... that they won't be able to stop the collapse of the company," said Mark Pado, an analyst at Cantor Fitzgerald.

Mr Pado said it was unclear if a buyer would step forward quickly enough.

"There is a lot of talk about whether in this environment anybody can raise the money to put in the capital that's needed for a company like Lehman," he said.

Lehman has lost billions of dollars through its badly judged bets on the growth of US sub-prime mortgages - a market that began to crumble last year.

Lehman's shares are down more than 94% from their 52-week high of $67.73 in November 2007.

No white knight

The Wall Street bank said on Wednesday it made a loss of $3.9bn (2.2bn) between June and August, taking its losses this year to $6.6bn.

To shore up its weak financial position, it has slashed its dividend and will sell a stake in its lucrative fund management arm.

It will also reduce its exposure to residential mortgages and spin off its commercial real estate business as part of the shake-up.

But investors were not convinced that Lehman would be able to pull off the deals and raise the money it needs to plug its losses.

"Finance is a confidence game," said Andrew Busch, analyst at BMO Capital Markets.

"Once it's gone, the critical function of being able to trade with other financial entities becomes difficult and expensive," he added.

Lehman had hoped that a "white knight" investor might step forward to inject capital into the firm.

Earlier this week, Korea Development Bank (KDB) said it had pulled out of talks with Lehman Brothers with regard to possible investment in the US bank.


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