US investment bank Lehman Brothers today announced that it expects to post an unprecedented second-quarter loss of $2.8 billion, citing 'challenging market conditions.'
The bank said it intends to raise $6 billion through a special stock offering in order to help shore up its balance sheet as it endures its first loss since becoming a public company in 1994.
The investment bank's earnings have taken a hit due to losses on mortgage-backed securities tied to the US housing slump and because of a related credit crunch which has roiled Wall Street's banking industry.
'I am very disappointed in this quarter's results. Notwithstanding the solid underlying performance of our client franchise, we had our first-ever quarterly loss as a public company,' chairman and CEO Richard Fuld said.
The expected $2.8 billion loss announced by Lehman was considerably more than Wall Street had been anticipating. Some analysts had penciled in a likely loss of around $300m.
The anticipated loss compares with net profit of $1.3 billion for the same time last year.
Lehman offered few details about its planned $6 billion stock offering, but said it would use the proceeds raised to boost its capital.
The bank, like many of its rivals on Wall Street, has seen its finances roiled by the housing market downturn and the credit squeeze, which has made many banks more cautious about lending.
Other banks such as Citigroup and Merrill Lynch have reported multibillion dollar losses in recent months, and been forced to raise fresh capital from deep-pocketed investors.
The bank said it had had to mark down the value of some of its assets as well as absorbing some trading losses during the quarter. The firm said it had reduced its market exposure to mortgage-backed securities and large real estate investments as it vies to stem its losses.
Speculation that Lehman, which traces its founding to 1850, would announce a loss and a capital-raising operation had become frenzied last week, driving down the bank's stock price.
The swirling market rumors prompted the bank to release a statement from its treasurer, Paolo Tonucci, stating that Lehman had not - contrary to market talk - borrowed money from a special lending facility set up by the Federal Reserve.
