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Bove: Lehman Has Three Days to Live

Friday, 22 Aug 2008 01:58 PM

Lehman Brothers, the country's fourth-largest investment bank, has three days to solve its problems before it becomes the target of a hostile takeover, says veteran bank analyst Richard Bove.

Lehman CEO "Dick Fuld has the weekend to come up with a solution to Lehman's problems," Bove told Bloomberg News.

"If he doesn't do it; if he doesn't sell real estate or come in with some new equity, then the game is on, and Lehman is in play" for a takeover.

Just 18 months ago, Lehman CEO Fuld was the toast of Wall Street for his ability to rack up huge profits and keep the firm out of the hands of larger rivals.

But the real estate and credit crisis have put Lehman under extreme pressure. The fixed-income-focused securities firm has suffered $8.2 billion of credit losses and write-downs in the last year.

Analysts say Lehman's earnings report next month could well include another $4 billion of write-downs.

"People inside Lehman are very upset with him because he has destroyed their income. He has been paying them with stock in the last couple years, and now that stock isn't worth anything."

People outside the firm are furious with Fuld too, Bove notes. They see his actions in contrast to Merrill Lynch CEO John Thain.

"Whenever Thain sees a problem, he knocks the head off of it. He gets in there and doesn't care what the results are, but solves the problem," Bove says.

But Fuld hasn't done that, Bove says. "Dick Fuld has dragged his heels. He hasn't made decisions," Bove says.

"He has given bad information to the street about when write-offs will occur and what they will be," Bove says.

If Lehman goes into play for a takeover, Bove sees two categories of bidders. One is private equity firms. The other is banks.

Fuld reportedly missed a chance to sell half of Lehman to Asian bidders in early August in a squabble over price. But buyers are all around, Bove says.

"There are plenty of banks outside the U.S. that would be interested, including ones in Japan, Canada, and Great Britain," he says.

"There are also firms inside the U.S., like Greenhill, Lazard, Blackstone, and BlackRock. Even Bank of America might take a look."

Bove says that if Lehman is taken over, it will likely be sold for about $20 a share. "I picked that number yesterday because it was a 50 percent premium to where the stock was selling," he says.

"My impression is that Dick Fuld is asking for a 20 percent premium-to-book value, which would put a bid in the low $40s. I don't think there's a prayer that's going to happen."

Lehman stock jumped more than 10 percent after Korea Development Bank (KDB) said it was considering an investment in the beleaguered firm.

The Financial Times reported that government-owned KDB had turned down a 50 percent investment in Lehman, as did China's Citic Securities, because Fuld sought too high a price.

Lehman has options outside of KDB, though, Bove says. "There are a number of private equity firms willing to provide Fuld with funds to keep the company independent," he points out.

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Lehman Brothers, the country's fourth-largest investment bank, has three days to solve its problems before it becomes the target of a hostile takeover, says veteran bank analyst Richard Bove.Lehman CEO "Dick Fuld has the weekend to come up with a solution to Lehman's...
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