Lehman Brothers (LEH) released its critical Q3 earnings and strategic plan: a huge writedown and lots of options. The real news is that, after seven months of crisis management, Lehman is still evaluating half a dozen options...and consummating none of them.
The release does say that Lehman is now considering "all" strategic alternatives, which presumably means it is considering selling itself (which is new). Aside from that, there's little in the release that we didn't know already:
- The firm plans to spin off $25-$30 billion of its crappy real-estate assets into a "bad bank". This begs the question where the equity financing will come from. The release doesn't answer this question.
- The firm plans to sell a majority stake in its investment management business.
It's not clear whether Lehman's problem is denial, incompetence, or just an impossible situation, but reports do suggest senior management still doesn't fully appreciate what a pickle the firm is in.
The firm's current liquidity should pacify traders for a while. But unless Lehman does something soon, whatever confidence this instills will soon evaporate. The company's gross writedowns in the quarter were a shocking $7.8 billion, and there is presumably more where that came from. With the firm continuing to struggle, moreover, it is likely that clients will soon consider taking their business elsewhere.
