Lehman shares plunge again

Investors send shares of Wall Street firm 17% lower, a day after it releases more details about quarterly loss.

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By David Ellis, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- Shares of Lehman Brothers got socked yet again Friday, ending sharply lower just a day after the Wall Street firm provided more details about last quarter's nearly $3 billion loss.

Lehman (LEH, Fortune 500) shares finished nearly 17% lower. So far this year, Lehman shares are down 78%.

Rose Grant, a managing director at Eastern Investment Advisors in Boston, blamed the decline on broader fears about the underlying health of mortgage buyers Fannie Mae and Freddie Mac and an increase in the cost to insure Lehman's debt.

"There is no faith - just too much fear out there," said Grant, whose firm has no position in Lehman.

That nervousness spilled over to the broader financial services sector. Shares of Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) fell 4.5% and 3.9% respectively.

Late Thursday, Lehman provided greater details about the stunning $2.8 billion loss it suffered in the second quarter.

Lehman revealed that it had $41.3 billion in Level 3 assets - those that are hard-to-value - at the end of the quarter, down from $42.5 billion in the previous quarter.

Nearly half of those assets were mortgage-related and asset-backed positions, the company said.

Lehman also revealed that its Tier 1 capital ratio, a key measure of a financial institution's ability to absorb losses, remained at 10.7% at the end of the quarter. By comparison, Goldman Sachs and Morgan Stanley (MS, Fortune 500) reported Tier 1 capital ratios of 10.8% and 12.4% respectively in their quarterly filings.

A Tier 1 capital ratio of above 8% is generally considered a good sign for financial institutions.

Such numbers however, provided little comfort in what has been a particularly tough week for Lehman Brothers.

Lehman shares tumbled over 12% Thursday amid market speculation that several of the company's business partners were scaling back their ties with the New York City-based investment bank.

Several companies denied the rumors, including Pacific Investment Management Co. and hedge fund SAC Capital Advisors, both of whom issued statements saying their business relationships with Lehman remain intact.

Still, Thursday's episode has almost become routine for Lehman. The company has been mired in speculation about its underlying health since Bear Stearns nearly collapsed in mid-March.

Hedge fund manager David Einhorn of Greenlight Capital made headlines after he questioned the company's accounting, saying it hadn't reserved for losses on its portfolio of collateralized debt obligations.

And there has also been plenty of talk that it may have to sell all, or part of itself to another financial firm.

Lehman has been hurt by a sharp slowdown in its fixed income business, a series of writedowns on the company's mortgage portfolio and hedging strategies that backfired.

When Lehman announced its quarterly loss last month, the company also disclosed plans to raise $6 billion in fresh capital, two thirds of which would come from the sale of common stock and the remainder through preferred stock. To top of page

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