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Lehman Brothers preannounced a third-quarter loss of $3.9bn, almost double the consensus estimate of $2.2bn. Gross writedowns of $5.3bn on residential mortgages and $1.7bn on commercial real estate accounted for most of the loss, partially offset by $800m of hedging gains and $1.4bn of gains related to falls in Lehman’s debt.

Lehman reduced its commercial real estate exposure by 18% to $32.6bn, and its residential mortgage exposure by 31% to $17.2bn. That will fall another $4bn once Lehman completes the sale of some UK mortgage assets to Blackstone – for which the investment bank will provide three-quarters of the financing.

In addition, Lehman announced that it is in the latter stages of selling a 55% stake in most of its investment management division – its middle market institutional distribution business and its stakes in hedge funds are not included. Lehman said it is in talks with several suitors, and while the potential cash proceeds from the sale were not revealed, the firm’s tangible book value will increase by $3bn as goodwill related to the acquisition of Neuberger Berman five years ago will be eliminated.

The firm will also spin off to shareholders most of its remaining commercial real estate assets – up to $30bn. That deal is expected to close in the first quarter of next year.

9 Sep 2008 -

Dead end?