ALL BUSINESS: Lehman searches for survival options

NEW YORK—No corporate leader wants to be backed into a corner, but that's where Lehman Brothers' CEO Richard Fuld is now. He's right where he belongs.

For months, Fuld, 62, thought the firm he has worked at since he left college could outrun the credit storm rather than deal with its consequences.

That misplaced bet is punishing Lehman now, leaving it teetering on the edge of collapse unless it can find a bank or other investment firm willing to rescue it. That may depend on whether Lehman's potential white knight can persuade the government to provide some backing -- the way it did to ease the sale of Bear Stearns in March -- and that may be a long shot.

It didn't have to be this way.

Lehman's stock price didn't have to be down 90 percent this year. It didn't need to be tallying losses of about $6.9 billion in the last two quarters. It shouldn't be desperately searching for life preserver.

There is no denying that the current credit crisis is unprecedented. Financial institutions globally are facing huge write-downs and losses on their real-estate investments that went bad.

The problem is that Lehman's top brass kept thinking they knew better. Wait the housing and mortgage downturn out, they thought, and then conditions will improve and so will our business. That's why they were slow to mark down the value of their damaged assets to reflect current market conditions.

Back in April, Fuld said at the company's annual meeting that the worst was "behind us" regarding the credit crisis. He ate those words weeks later -- for Lehman, the troubles had really just begun.

And even after it was apparent that Lehman hadn't escaped the credit storm, its leadership never seemed to commit entirely to getting this mess under control. At least that was the view of stockowners, who kept pushing the stock down.

In June, when the first loss projections were announced, its shares traded around $30 each. In recent days, it has been closer to $4 -- a steep decline from around $60 each where the shares began the year.

"It's up to management of any firm to prove to people their company isn't a lemon," said Robert Eisenbeis, chief monetary economist at the portfolio management firm Cumberland Advisors. "Why then does it take so long for major institutions to clean up their problems?"

That's why so much attention went to Wednesday's announcement of a Lehman rescue plan. Investors had been left wondering and waiting for a while. They hoped for something meaty.

What they got resembled a flimsy slice of Swiss cheese.

"The programs that the firm has announced as its new strategic direction appear to be a sham. It looks like business as usual," said Richard Bove of the investment firm Ladenburg Thalmann.

The only affirmed part of the restructuring plan was the reduction in the dividend, which was slashed from 68 cents a share to 5 cents in a move that will save an estimated $450 million a year.

Beyond that, the company said it will auction a 55 percent stake of the investment management business, which includes its prized fund manager Neuberger Berman that it bought in 2003. Fuld said the firm was in late-stage talks with potential buyers for the business, but declined to give specifics about a timeline.

Lehman also said it planned to spin off $25 billion to $30 billion of commercial real estate investments into a separate publicly traded company, to be called Real Estate Investments Global, in the first quarter of 2009. However, as Ladenburg Thalmann's Bove notes, that will be done with 100 percent financing from Lehman.

On Wednesday, Fuld said the firm would explore all other options, including the sale of the entire company.

Even the rhetoric that Lehman's executives used Wednesday didn't do much to settle the nerves of jittery investors. Instead of specifics, they heard big themes like when Fuld touted the plan as one to "protect our shareholders, our capital and our franchise by maintaining strong liquidity and exiting our real-estate exposures in a measured way over time."

Lehman had its chance again to tell the marketplace it was on the case with a concrete plan -- at least a named buyer for its investment management division. Lehman blew it. The stock resumed its freefall.

Lehman's leaders are now scrambling desperately to find a buyer before the firm loses further market value and confidence.

For the first time in this crisis, they seem to be moving fast.

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Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org