Lehman to Sell $3 Billion of Shares to Institutional Investors

Lehman to Sell $3 Billion of Shares to Institutional Investors

March 31 (Bloomberg) -- Lehman Brothers Holdings Inc., which has dropped 42 percent this year in New York trading, is selling at least $3 billion of new shares to U.S. institutions to reassure investors it has ample access to capital.

Lehman will offer 3 million convertible preferred shares, the New York-based firm said in a statement today. It didn't identify the investors.

``We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Chief Financial Officer Erin Callan said in an interview. ``This is an endorsement of our balance sheet by investors.''

The fourth-biggest U.S. securities firm has been battered by speculation its access to capital was limited. Smaller rival Bear Stearns Cos. collapsed during a run on the company earlier this month. Merrill Lynch & Co., Citigroup Inc. and Morgan Stanley have also raised cash from outside investors after more than $200 billion of writedowns and losses tied to the collapse of the subprime mortgage market.

Lehman said on March 18 that it had $30 billion of cash and $64 billion in assets that could easily be turned into cash. The securities firm has access to an additional $200 billion from a Federal Reserve credit facility, according to Prashant Bhatia, an analyst at New York-based Citigroup.

Lehman's stock fell as much as 48 percent on March 17 on speculation it would face the same cash shortage that broke Bear Stearns. The shares gained 46 percent the next day, when Lehman announced first-quarter earnings and its cash position.

Bhatia upgraded his recommendation for Lehman to ``buy'' from ``neutral'' last week, saying the stock price drop was overdone.

`Ample Liquidity'

``Reality will trump fear,'' Bhatia wrote on March 28. ``Lehman has ample liquidity to run its business.''

The firm's net income declined 57 percent in the quarter, less than analysts estimated, because of a $1.8 billion writedown on mortgage assets. Merger advisory fees jumped 34 percent, investment-management revenue surged 39 percent and equities rose 6 percent.

Bear Stearns, formerly the fifth-largest U.S. securities firm, was forced to sell itself to JPMorgan Chase & Co. this month at a fraction of its market value with financial support from the Fed.

Merrill Lynch raised $6.6 billion in January by selling preferred shares to a group including the Kuwaiti Investment Authority and Japan's Mizuho Financial Group Inc.

Lehman announced the financing after the close of regulator trading on the New York Stock Exchange, where shares closed 23 cents lower at $37.64.

BLOOMBERG