Goldman cuts projections for Lehman, others

NEW YORK—Lehman Brothers Holdings Inc. received more bad news on Tuesday after another analyst projected that the investment bank will unveil a big third-quarter loss.

William Tanona, an analyst at Goldman Sachs, said after the market closed he believes Lehman will post a $2.5 billion-to-$3.5 billion loss during the quarter. He also believes that any recovery for the troubled industry is still a few quarters away, and that many Wall Street banks will focus on purging their books of risky mortgage securities.

He also lowered third quarter and full-year estimates for Merrill Lynch & Co., JPMorgan Chase & Co., and Morgan Stanley. Major investment banks have written down more than $300 billion since the credit crisis began last year, with several posting the first losses in their company's history.

"Once again, the majority of our negative estimate revisions are being driven by higher than estimated write-downs on mortgage assets," he said in the report. "In addition though, we are also seeing results being negatively impacted by slower levels of client activity and expenses and fines from auction rate securities."

Tanona expects Lehman will be "very aggressive" in cutting its exposure to mortgage-backed securities through asset sales -- and that would follow a similar move made by Merrill Lynch last month. Lehman could reduce its overall mortgage exposure by 20 percent, or about a $15 billion reduction, he said.

This was the second analyst on Tuesday to issue a report warning of big losses at Lehman. JPMorgan analyst Kenneth Worthington said before the market opened in New York that he expects a $4 billion loss for Lehman during the current quarter.

Similar projections have been made by analysts at Merrill Lynch, Deutsche Bank, and Fox-Pitt.

"We believe the management wants to leave its mortgage troubles behind and restore confidence, which it can best accomplish by reducing its higher-risk credit exposure," Worthington said in a research note.

Also on Tuesday, Standard & Poor's kept its "Hold" recommendation on Lehman Brothers.

Beyond how much risk Lehman might cut from its balance sheet, and the amount of losses and write-offs it could potentially take, analysts are also speculating about how the company will raise fresh capital. There has been heavy speculation in the past few weeks that Chief Executive Richard Fuld might be considering the sale of all or part of Lehman's investment management business.

Such a deal could include the sale of Neuberger Berman, which it bought five years ago, to a private-equity company.

A spokeswoman for Lehman Brothers declined to comment. The company will report quarterly results in mid-September.

Lehman shares, already down 80 percent from its 52-week high of $67.73, took another beating on Tuesday. Shares closed down $1.96, or 13 percent, at $13.07. It gave up another 33 cents, or 2.5 percent, to $12.74 in after-hours trading.