Some Lehman counterparties limit trading with firm: analyst
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11:03 AM EDT June 5, 2008
SAN FRANCISCO (MarketWatch) -- Some of Lehman Brothers' counterparties are limiting trading with the brokerage firm because of persistent concerns about its capital and leverage and a recent credit rating downgrade, Brad Hintz, an analyst at Bernstein Research, said on Thursday.
"Fixed income counterparties have become more discerning about which Lehman subsidiaries they will trade with," the analyst wrote in a note to clients.
Lehman's main operating subsidiaries in the United States, United Kingdom, Japan and Germany are still being fully accepted by the market, Hintz noted.
However, cautious credit officers at clients of the firm are limiting trading with its unregulated derivatives subsidiaries, said the analyst, a former Lehman chief financial officer and Morgan Stanley treasurer.
"In the near-term, we expect this pullback by counterparties will hurt the earnings of the firm's fixed income, equities and commodity derivative franchises," Hintz added. The analyst cut his third-quarter and fourth-quarter earnings estimates by 11 cents a share each to reflect this.
A Lehman spokesman didn't immediately return an email seeking comment on Thursday morning.
"We don't believe Lehman is facing a life-threatening funding run," Hintz stressed.
Lehman raised $4 billion selling preferred equity securities in April and has increased the amount of longer-term debt it has to repay. The brokerage firm has also been working "vigorously" to reduce its balance sheet and its main U.S. broker/dealer unit can borrow directly from the Federal Reserve as a last resort.
"This being said, confidence concerns about any broker will have a negative impact on the firm's bottom line," the analyst concluded. |
