NEW YORK (Reuters) – Lehman Brothers Holdings Inc. said it plans to sell a majority stake in its investment management division and spin off commercial real estate assets as the struggling U.S. investment bank fights to raise capital.
The fourth-largest U.S. investment bank said it has reduced exposure to toxic assets, including cutting its residential mortgage exposure by nearly half, and cut its dividend.
“This is an extraordinary time for our industry, and one of the toughest periods in the firm’s history,” Chief Executive Richard Fuld said in a statement.
Lehman shares erased earlier gains to trade lower at $7.29 in pre-market dealings as the company did not announce a specific deal to sell its asset management business.
Selling the investment management division is designed to boost the company’s capital levels; spinning off commercial real estate assets is meant to reduce the toxic investments that have reduced Lehman’s market value by more than $40 billion since February 2007.
Lehman had already taken $7 billion in credit-related write-downs and losses since the start of the global credit crisis.
Facing what may be billions of dollars in additional write-downs, the bank has examined options from selling a stake to a Korean bank to spinning off the investment management unit, but investors have been frustrated at a lack of progress.
World stocks fell toward two-year lows on Wednesday as the problems faced by Lehman stoked concern that banks are struggling to rebuild capital and financial markets remain brittle. The yen trimmed losses, while bonds remained in red.
“Lehman’s meltdown won’t probably be the last negative episode of this credit crisis,” said Christian Jimenez, president of Imene Investment partners, in Paris.
Shares of Lehman plunged as much as 46 percent on Tuesday, wiping out $4.4 billion in market value. The stock closed in New York at $7.79, down $6.36, slashing its market capitalization to under $6 billion, down from $36 billion a year ago and one-twelfth of the value of Goldman Sachs.
Investors are worried Lehman may fail to raise enough capital to keep operating, as losses mount from soured mortgages and other toxic assets.
In what looked like a concerted effort to boost investor confidence in Lehman, a slew of Wall Street firms, including Goldman Sachs and Citigroup Inc, said they were still trading with the firm late on Tuesday afternoon.
By Dan Wilchins
(Additional reporting by Sweta Singh in Bangalore, Kim Yeon-hee and Marie-France Han in Seoul, Steve Slater and Natsuko Waki in London, Blaise Robinson in Paris; Editing by Lincoln Feast, Erica Billingham and John Wallace)