Lehman Gives In

It's been a long slog for Lehman Brothers (LEH), as criticism of CEO Richard Fuld mounts because of concern over the 158-year-old bank's capital position. Trouble culminated in today's announcement that the bank will post a $3.9 billion loss in the third quarter. That's $5.92 a share, far higher than the $3.35-a-share loss expected by Wall Street prior to the announcement.

In an attempt to reverse the crisis at Lehman, speculation that it would sell off its highly profitable fund-manager Neuberger Berman as part of a 55 percent sale of its investment management group has been confirmed. Lehman also announced a plan to spin off its commercial real estate assets in the first quarter of next year and cut its dividend by 93 percent.

Oppenheimer & Co. analyst Meredith Whitney called revenues "weak across all businesses." Whitney had this to say:

Debt underwriting, equity underwriting, and advisory all weaker than expected. Investment management revenue down over 20% YoY with no asset growth. Expenses down but clearly not enough to offset revenue declines. Although the announced initiatives are a step in the right direction, we believe that Lehman still faces challenges to earnings given a lower capital markets environment for the next several quarters and further write-downs to its risk exposures.

Yesterday's 45 percent drop in Lehman's share price after failed talks with Korea Development Bank was the latest in a string of troubles for a bank struggling to reassure clients and shareholders during what Fuld called "one of the toughest periods in our firm's history."

The question is: Can Lehman raise enough capital with the Neuberger sale and other moves to reassure Wall Street that it has an independent future, or will it wind up on the growing list of companies (Bear Stearns, Fannie Mae, and Freddie Mac) on the Fed's too-big-to-fail wall of shame?

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