NEW YORK (Reuters) - Lehman Brothers Holdings Inc is expected to follow in Merrill Lynch & Co Inc's footsteps and sell a lot of risky assets at a loss. But shedding the assets may create another headache for Lehman -- the need to raise large amounts of new capital, including common equity.
Any capital raise would be painful for Lehman and its shareholders, given that the company just raised $6 billion in June and trades at a significant discount to its book value, or the net accounting value of its assets.
But Lehman, the fourth-largest U.S. investment bank, may have little choice as it wrestles with roughly $65 billion in mortgage-related assets, particularly after Merrill Lynch agreed to shed $30.6 billion in toxic assets at a fire-sale price of 22 cents in the dollar, analysts said.
"Lehman's caught between a rock and a hard place. They're getting more and more pressure from regulators and investors to add reserves or mark these things down," said David Hendler, an analyst at independent research firm CreditSights in New York.
From Thain's interview below, we know that the Level 3 assets are over-priced. Otherwise why would they be Level 3? So Lehman, must raise capital, to offset the "fictitious capital" that exists in these Level 3 assets.
When the asset is sold, so goes the capital.
Thus the simultaneous capital raise with the sale of Level 3 assets.
But the market already knows this. These stocks are selling at a discount to book value, because everyone knows that the "book" isn't real.
But these Wall Street CEO's still make me want to puke.
They couldn't trade themselves out of a wet paper bag!
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