Lehman may face pressure to merge
Written on June 11, 2008
The latest capital raising by Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) will help the investment bank remain independent for now, but it may have to look for a merger partner in the longer run.
Lehman on Monday raised $6 billion in capital and projected a worse-than-forecasted quarterly loss of $2.77 billion, sending its shares swooning to a new five-year low.
Experts say stand-alone U.S. investment banks such as Lehman are likely going to have to find commercial bank partners to get access to a stable source of funds. That will help them deal with future shocks and to sustain growth even if regulators restrict leverage.
And once the credit crisis begins to ease, battered brokerages are likely to make for attractive pickings for commercial banks looking to expand into investment banking, setting the stage for consolidation in the industry.
“It would be harder to have a Bear Stearns kind of run on the bank at an investment bank that is affiliated with a commercial bank,” said Chip MacDonald, a partner at the law firm Jones Day us fast cash no fax payday loans. “Stable funding sources can be a real help in the time of stress.”
“The situation has to stabilize on all sides before people start thinking about M&A,” MacDonald added. He declined any comment on Lehman specifically.
Fox-Pitt Kelton analyst David Trone predicted last week that a “historic” consolidation of U.S. investment banks with domestic or foreign commercial banks could be in the offing as soon as next year, as reduced risk-taking means the potential for high returns isn’t what it used to be on Wall Street.
Trone said in a report he expected a “very rapid pairing” of Goldman Sachs (GS.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research), Merrill Lynch (MER.N: Quote, Profile, Research) and Lehman with commercial banks.
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