Lehman bounces back after ‘Buy’ rating
Lehman Brothers Holdings Inc. shares bounced from its lows Thursday after an analyst upgraded his rating on the investment bank to "Buy," and believes it now has become a "hostile takeover candidate."
Ladenburg Thalmann analyst Richard X. Bove believes that Lehman Brothers (LEH, Fortune 500) management values the company at a premium, and would be willing to sell at the right price. He believes that a "deep pocket buyer" could emerge to buy the nation’s fourth-biggest investment bank.
"So the market is at a stand-off," Bove said in a note to clients. "Investors are unwilling to accept any positive view of the company; management is unwilling to sell out at a deeply distressed value. The stage is set for a hostile bid to take over the whole company."
Immediately after the note was published, Lehman Brothers shares - down about 6% earlier in the session - bounced higher. Shares of the company were down 9 cents at $13.64 in afternoon trading. The stock has traded between $12.02 and $67.73 over the past year.
Before the opening bell in New York, shares were initially under pressure after another analyst increased his third-quarter loss estimate and slashed his price target for the investment bank, projecting yet another tough quarter of write-downs.
In a note to clients issued Wednesday night, Citi Investment Research analyst Prashant A. Bhatia also said he saw a "lower probability" that the New York-based investment firm would sell its Neuberger Berman business or raise capital in the near term.
Several Wall Street analysts have been speculating about a possible sale of all or a portion of Lehman’s asset-management business.
"Even under the potentially more stringent rating agency guidelines related to the amount of preferred securities in the capital mix, we anticipate that Lehman can absorb over $3 billion of after-tax losses without adding more common equity," Bhatia wrote in a research note.
He lowered his third-quarter estimates on Lehman, predicting a "difficult operating environment, characterized by lower client-related trading volumes and losses on hard-to-sell assets."
Bhatia widened his projection of a quarterly loss to $3.25 per share from a previous forecast of a loss of 41 cents per share. Wall Street analysts expect a profit of 12 cents per share, according to a poll by Thomson Reuters.
The analyst also axed his price target to $35 from $50. Nevertheless, he rates Lehman Brothers as a "Buy."
Bhatia said he expects Lehman to take fresh asset related write-downs of $2.9 billion during the most recent quarter.
"Based on further deterioration in several indices, we expect further write-downs, primarily related to mortgage assets," he wrote.
Investment banks have been struggling with mounting losses and write-downs on bonds and debt backed by mortgages. As mortgages increasingly have defaulted over the past year, the value of bonds backed by the troubled loans has declined.
Banks have been forced to cut the value of their holdings or sell their investment at losses.