Futures drop as Lehman, fund fallout weigh
Wednesday September 3, 7:46 am ET
By Ellis Mnyandu
NEW YORK (Reuters) - U.S. stock index futures fell on Wednesday as news of the demise of a hedge fund partly owned by Lehman Brothers (NYSE:LEH - News) rekindled worries about the outlook for the beleaguered financial services sector.
News that hedge fund manager Ospraie Management LLC will close its flagship fund after it plunged 27 percent in August due to losses in energy, mining and natural resources equity holdings damaged stocks in Europe where major averages slid 1 percent or more.
Shares of Lehman Brothers, which owns 20 percent of Ospraie, dropped nearly 3 percent to $15.71 before the bell.
Analysts said the hedge fund closure could complicate Lehman's efforts to raise new capital as it seeks to bolster a balance sheet weakened by mortgage losses.
"The biggest drag on the market right now is the news involving Lehman," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.
"The last thing Lehman needs while they are looking to raise new capital is to have skeletons like this falling out of the closet. There's a clear possibility that this could impede the process of getting new investors in."
S&P 500 futures (SPc1) fell 4.70 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Dow Jones industrial average futures fell 41 points and Nasdaq 100 futures dropped 11 points.
The hedge fund's closure, announced after the bell on Tuesday, overshadowed a report in South Korea's Daily Chosun Ilbo newspaper that top European bank HSBC Holdings (LSE:HSBA.L - News; HKSE:0005.HK - News) , several U.S. hedge funds and an unidentified Chinese bank are among potential buyers of Lehman, the fourth-ranked U.S. investment bank.
Coca-Cola (NYSE:KO - News) is also among stocks to watch after the world's leading drinks maker agreed to pay $2.5 billion for Chinese juice maker Huiyuan (HKSE:1886.HK - News) , the biggest-ever takeover in China by a foreign company.
In earnings news, Staples Inc (NasdaqGS:SPLS - News) , the leading U.S. office supply retailer, posted a decline in second-quarter profit but it matched Wall Street's forecasts.
Wednesday's economic calendar includes the Federal Reserve release of its Beige Book on regional economic conditions at 2 p.m. EDT. The report is likely to reinforce the view of weak growth and elevated price pressures.
Data for factory orders in July is due at 10 a.m. EDT. A government report on energy inventories for the latest week is due at 10:35 a.m. EDT.
Major U.S. auto makers are also in focus as they prepare to post August sales reports.
U.S. stocks fell on Tuesday, as a steep decline in the price of oil and other commodities hammered energy and materials companies while tech shares fell on worries about an economic slowdown.
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