On Turbulent Day,
Lehman Ends Up
Buying Back Shares
About-Face Came
As Rumors Swirled,
Stock's Price Sank
By SUSANNE CRAIG
June 4, 2008
Lehman Brothers Holdings Inc., facing a sharp decline in its stock that will make it more difficult to raise fresh capital, did an about-face and began using its own money to buy back its plummeting shares.
After opening only slightly down Tuesday, the Wall Street firm's shares had tumbled nearly 15% by midday as investors fearing that their stakes would be diluted sold their shares and rumors flew around trading desks that Lehman had gone to the Federal Reserve for funds. Lehman said that wasn't true.
But a second rumor, that Lehman was buying back shares, turned out to be true, people familiar with the situation said.
[LEH]
Lehman's shares, which topped the New York Stock Exchange's most active list, bounced back to close down 9.5%, or $3.22, to $30.61 in 4 p.m. trading on the New York Stock Exchange. Tuesday's trading wiped $1.72 billion off of Lehman's market value and the closing price was Lehman's lowest since August 2003. Lehman's shares have fallen 18% in the past three trading days.
On Tuesday, The Wall Street Journal reported that Lehman, which is set to post one of the biggest quarterly losses in its history, was considering raising fresh capital. Analysts and Wall Street executives believed the capital the firm raises could top $4 billion. Lehman maintains it is well positioned to weather the current credit crisis and said raising capital is simply one of many options it is considering.
Over the past year, the announcement of a capital raising by financial firms has been a buy signal for investors. Lehman, which has already raised $6 billion in capital during the crisis, met a different reaction. But given the stock decline, selling shares may turn out to be prohibitively expensive for the firm, according to a person familiar with the matter. Instead, the firm may look to sell a bigger stake to a smaller group of investors and has had talks in recent days with at least one foreign entity, according to a person familiar with the matter. Lehman didn't return calls for comment.
In the wake of the stock fall, the company began using its capital to buy back its shares, according to a person familiar with the matter. It was unclear how much stock Lehman bought back, but with shares trading at roughly 22% below its book value at the end of the first quarter, the buying could be seen as a vote of confidence by management.
Alternatively it could be viewed as a waste of capital, though Lehman has about $40 billion in liquid assets on its balance sheet and has access to funding from the Federal Reserve, so short-term capital issues aren't a major concern for Lehman.
Write to Susanne Craig at susanne.craig@wsj.com
They hit it. |
