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Commercial Property News
Lehman Bros announce Q2 losses and prepare for a 28% fall in UK residential property values
Troubled US investment bank Lehman Brothers posted its first loss as a public company, confirming indications released last week at the time of its cash-raising announcement and boardroom blood-letting.
The company posted a net loss in the second quarter of $2.8bn, as expected.
It was the company's first quarterly loss since it floated from American Express in 1994, and compares with a net income of $1.3bn in the second quarter of last year.The bank is trying to convince the markets that it has taken the most prudent valuation of it's property securities, so that there will be no more nasty surprises. In the UK Lehman has been a major lender in the sub-prime,self-certified mortgage market.
Ian Lowitt, the bank's chief financial officer, said Lehman had $9.3bn in exposure to residential property outside the US, most of which is in Britain. About two thirds of this is through high-risk mortgages. He said Lehman had reduced the value of these British holdings to reflect a "peak-to-trough decline in house prices of approximately 28%". Prices have so far fallen by about 7%.
The write-down is a deliberate attempt to be as cautious as possible. But it outstrips even the most bearish of forecasts elsewhere - Morgan Stanley, for example, has suggested that prices could fall by a fifth over two years. A 28% decline would leave more than two million people with negative equity in their homes.
Lehman's shares have dived by nearly 60% since the beginning of the year on anxiety about its large position in the mortgage market. Short sellers have been placing bets that the bank could go the same way as Bear Stearns, which collapsed as confidence among clients evaporated.
Chermaine Lee, an analyst at the Boston-based research firm Celent, said Lehman had taken "credible measures" to reduce the risk in its portfolio and that its survival ought not to be at stake.
Loss per share was $5.14 versus earnings per share of $2.21 a year earlier.
Net revenue in the three months to end-May was negative at $700m, compared with $3.5bn in the preceding quarter and $5.5bn in the second quarter of 2007. Net revenue is defined as total revenues minus interest expenses.
The negative net revenue in the second quarter reflects downgrades in the value of certain debt liabilities and principal trading losses.
Net revenue in the first six months of the company's financial year was positive, at $2.8bn, but way down on the $10.6bn seen in the corresponding period of 2007.
The Capital Markets division reported negative net revenue of $2.4bn versus positive net revenue of $3.6bn a year earlier, while the Fixed Income Capital Markets division also reported negative net revenue, of $3bn, versus positive net revenue of $1.9bn a year earlier.
Equities Capital Markets saw net revenue reduced from $1.7bn in the second quarter of 2007 to $0.6bn, while Investment Banking saw net revenue dip to $0.9bn from $1.2bn..
Investment Management clocked up net revenue of $0.8bn, unchanged from a year earlier.
During the second quarter the bank said it reduced its exposure by about one fifth in residential mortgages, commercial mortgages and property investments.
Gross assets tumbled $147bn to $639bn at the end of the quarter while net assets fell $70bn to $327bn.
The company posted a net loss in the second quarter of $2.8bn, as expected.
It was the company's first quarterly loss since it floated from American Express in 1994, and compares with a net income of $1.3bn in the second quarter of last year.The bank is trying to convince the markets that it has taken the most prudent valuation of it's property securities, so that there will be no more nasty surprises. In the UK Lehman has been a major lender in the sub-prime,self-certified mortgage market.
Ian Lowitt, the bank's chief financial officer, said Lehman had $9.3bn in exposure to residential property outside the US, most of which is in Britain. About two thirds of this is through high-risk mortgages. He said Lehman had reduced the value of these British holdings to reflect a "peak-to-trough decline in house prices of approximately 28%". Prices have so far fallen by about 7%.
The write-down is a deliberate attempt to be as cautious as possible. But it outstrips even the most bearish of forecasts elsewhere - Morgan Stanley, for example, has suggested that prices could fall by a fifth over two years. A 28% decline would leave more than two million people with negative equity in their homes.
Lehman's shares have dived by nearly 60% since the beginning of the year on anxiety about its large position in the mortgage market. Short sellers have been placing bets that the bank could go the same way as Bear Stearns, which collapsed as confidence among clients evaporated.
Chermaine Lee, an analyst at the Boston-based research firm Celent, said Lehman had taken "credible measures" to reduce the risk in its portfolio and that its survival ought not to be at stake.
Loss per share was $5.14 versus earnings per share of $2.21 a year earlier.
Net revenue in the three months to end-May was negative at $700m, compared with $3.5bn in the preceding quarter and $5.5bn in the second quarter of 2007. Net revenue is defined as total revenues minus interest expenses.
The negative net revenue in the second quarter reflects downgrades in the value of certain debt liabilities and principal trading losses.
Net revenue in the first six months of the company's financial year was positive, at $2.8bn, but way down on the $10.6bn seen in the corresponding period of 2007.
The Capital Markets division reported negative net revenue of $2.4bn versus positive net revenue of $3.6bn a year earlier, while the Fixed Income Capital Markets division also reported negative net revenue, of $3bn, versus positive net revenue of $1.9bn a year earlier.
Equities Capital Markets saw net revenue reduced from $1.7bn in the second quarter of 2007 to $0.6bn, while Investment Banking saw net revenue dip to $0.9bn from $1.2bn..
Investment Management clocked up net revenue of $0.8bn, unchanged from a year earlier.
During the second quarter the bank said it reduced its exposure by about one fifth in residential mortgages, commercial mortgages and property investments.
Gross assets tumbled $147bn to $639bn at the end of the quarter while net assets fell $70bn to $327bn.
Tue, 17th Jun 2008