Lehman Brothers Holdings Inc may set up a company funded by outside investors to buy some of its mortgage assets, aiming to dispel concern the firm faces crippling losses, industry sources have revealed to Bloomberg News.
Investors in the new venture would also manage the holdings, which are linked to commercial real estate, the sources said.
The New York-based firm had about US$40 billion in commercial-mortgage assets in May.
Lehman, the largest underwriter of mortgage bonds last year, has been trying to reduce assets linked to that market as demand dried up and prices plummeted, generating more than US$8 billion in writedowns and credit losses. BlackRock Inc, the largest publicly traded United States money manager, is considering a purchase of some of Lehman's commercial mortgages, other sources said last week.
"They need to reassure investors by offloading some of these assets," said Mayiz Habbal, an analyst at Boston-based research firm Celent. "Lehman isn't negotiating from a position of strength."
The company has lost almost 80 percent of its value on the New York Stock Exchange this year as Chief Executive Officer Richard Fuld, 62, tried to reassure investors Lehman wouldn't suffer the same fate as smaller rival Bear Stearns Cos. New York-based Bear Stearns collapsed in March when creditors and investors balked at doing business with the firm.
"There's no question that selling their troubled assets will help," said Michael Holland, chairman of Holland & Co, which manages US$4 billion of assets. "But how much will it help? We're in tough times, and it doesn't look like things are going to get any better any time soon."
Lehman, the worst performer on the 11-company Amex Securities Broker/Dealer Index this year, gained 58 cents, or 4.3 percent, to US$14.03 in composite trading. Lehman spokesman Mark Lane declined to comment on possible asset sales.
Lehman may contribute some of the equity for the new venture so it could benefit should asset prices recover, sources said.
UBS AG, Switzerland's biggest bank, and Merrill Lynch & Co, the third-largest US securities firm, also discarded mortgage assets in transactions in which they loaned buyers most of the money for the purchases. BlackRock and other investors put in US$3.75 billion of equity to buy US$15 billion of mortgages from UBS, with the rest borrowed from the Zurich-based bank.
In addition to its commercial real-estate holdings, Lehman had about US$24.9 billion in residential assets at the end of May.
The firm may decide to dispose of both types of mortgage holdings in an outright sale, though no final decisions have been made regarding what form a transaction will take, sources said.
Lehman has also been in talks with potential investors who'd buy a stake in the firm or its asset-management unit as a way to offset losses incurred while it's disposing of assets.
Private-equity firms including Blackstone Group LP and Carlyle Group expressed interest in the business, other sources said last week.
Kohlberg Kravis Roberts & Co has emerged as the frontrunner while Blackstone has dropped out, CNBC television reported on Monday.
