$3 billion capital for Lehman to boost investors’ confidence

Lehman Brothers Holdings Inc. is an investment bank, which off late had been besieged by rumors of a funds crunch. The fear psychosis of a capital constraint had led to a decline in it's stock. Lehman envisages to raise over $3 billion through a sale of convertible preferred shares numbering 3 million. Industry sources put the demand for stocks to be three times higher than the supply of the same. Lehman under CEO Richard Fuld slid sharply by 48% on 17th March 2008. Investors were wary that cash shortage would wreck Lehman as it had wrecked the Bear Stearns Cos.

Merrill Lynch & Co, Morgan Stanley and Citigroup Inc had already raised capital from investors. According to analysts this was the right decision in the prevalent market situation. This is expected to boost the confidence of the investors. According to industry sources the convertible preferred shares on sale from Lehman possess a coupon rate of around 7.5 %.

Lehman's net income fell by 57% in the last quarter. This was way below what the analysts had estimated. The main factor behind this was a $1.8 billion writedown effected on mortgage assets. Investment management revenue increased by 39 % , merger advisory fees rose by 34% and equities increased by 6 %. The credit-default swaps decreased for Lehman after the announcement. This reflects an increase in the investors' confidence on Lehman. Lehman stocks closed at $37.64 on 31st March 2008. It fell to $36.66 after the official closure of the market in trading at New York. According to the New York based broker "Phoenix Partners Group" credit default swaps pertaining to the "senior unsecured bonds" from Lehman decreased by 15 basis points. This was after an initial announcement of 285 basis points.

Lehman Brothers Holdings Inc. is offering around 35 percent conversion premium above it's current stock price. Once the sale is over then the final terms and conditions would be set by Lehman. The investment bank is to gain considerable financial flexibility from the widening of it's capital base.

According to a statement released by Lehman on 18th March 2008, it possessed $30 billion in cash and $64 billion worth of liquid assets, which could easily be transferred into cash. In addition to this Lehman Brothers Holdings Inc has access to a $200 billion worth of credit facility from Federal Reserve. Information about this credit facility has been provided by a Citigroup analyst based in New York. Market analysts predict that Lehman Brothers Holdings Inc. possesses enough liquidity to conduct it's business transactions successfully.