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Lehman Brothers Reports Second Quarter Results
- Reports Net Loss of $2.8 Billion, or ($5.14) Per Share -
NEW YORK, June 16, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Lehman Brothers Holdings Inc.
(NYSE: LEH) announced today a net loss of $2.8 billion, or ($5.14) per common
share (diluted), for the second quarter ended May 31, 2008, compared to net
income of $489 million, or $0.81 per common share (diluted), for the first
quarter of fiscal 2008 and $1.3 billion, or $2.21 per common share (diluted),
for the second quarter of fiscal 2007. For the first half of fiscal 2008, the
Firm reported a net loss of approximately $2.3 billion, or ($4.33) per common
share (diluted), compared to net income of $2.4 billion, or $4.17 per common
share (diluted), for the first half of fiscal 2007.
The Firm reported net revenues (total revenues less interest expense) for
the second quarter of fiscal 2008 of negative ($0.7) billion, compared to $3.5
billion for the first quarter of 2008 and $5.5 billion for the second quarter
of fiscal 2007. Net revenues for the second quarter of fiscal 2008 reflect
negative mark to market adjustments and principal trading losses, net of gains
on certain debt liabilities. Additionally, the Firm incurred losses on hedges
this quarter, as gains from some hedging activity were more than offset by
other hedging losses. For the first six months of fiscal 2008, the Firm
reported net revenues of $2.8 billion, compared to $10.6 billion for the first
half of fiscal 2007.
During the second quarter of fiscal 2008, the Firm further strengthened
its liquidity and capital position (all below amounts as of May 31, 2008):
-- Grew the Holding Company liquidity pool to $45 billion from $34 billion
at the end of the prior quarter
-- The Firm reported gross assets and net assets of approximately $639
billion and $327 billion, respectively, which decreased approximately
$147 billion and $70 billion, respectively, from the first quarter of
fiscal 2008
-- Reduced gross leverage to 24.3x from 31.7x at the end of the first
quarter, and reduced net leverage to 12.0x from 15.4x
-- Reduced exposure to residential mortgages, commercial mortgages and
real estate investments by approximately 20% in each asset class
-- Reduced acquisition finance exposures by approximately 35%
-- Reduced aggregate non-investment grade inventory (including funded
acquisition finance assets) by approximately 20%
-- Completed the budgeted full year fiscal 2008 unsecured funding plan
-- Increased the Firm's long-term capital through the issuance of $4.0
billion of convertible preferred stock in April and approximately $5.5
billion of public benchmark long-term debt
Chairman and Chief Executive Officer Richard S. Fuld, Jr. said, "Since we
announced our expected second quarter earnings last week, we have begun to
take the necessary steps to restore the credibility of our great franchise and
ensure that this quarter's unacceptable performance is not repeated. We have
raised an additional $6 billion of capital. I have asked Bart McDade, our
best operator, to serve as the Firm's president and chief operating officer.
I have also asked Ian Lowitt, our co-chief administrative officer, to be our
chief financial officer. With these actions and our continued commitment to
our client-driven franchise, we are positioned to take advantage of
opportunities that lie ahead, and we are focused on maximizing shareholder
value."
Business Segments
Capital Markets reported net revenues of negative ($2.4) billion in the
second quarter of fiscal 2008, compared to $1.7 billion in the first quarter
of fiscal 2008 and $3.6 billion in the second quarter of fiscal 2007. Fixed
Income Capital Markets reported net revenues of negative ($3.0) billion,
compared to $0.3 billion in the first quarter of 2008 and $1.9 billion in the
second quarter of 2007. Excluding mark to market adjustments, related hedges
and structured note liability gains, client activity in securitized products,
municipals and commodities remained strong, while credit, interest rate and
financing were down from last quarter but each up versus the year ago period.
Equities Capital Markets reported net revenues of $0.6 billion, a decrease
from $1.4 billion in the first quarter of fiscal 2008 and $1.7 billion in the
second quarter of 2007, as record revenues in prime brokerage and solid
execution services activity were offset, in part, by lower volatility revenues
as well as losses of approximately $0.3 billion on principal investments.
Investment Banking reported net revenues of $0.9 billion, consistent with
$0.9 billion in the first quarter of fiscal 2008 and a decrease from $1.2
billion in the second quarter of fiscal 2007. Debt underwriting revenues were
$0.3 billion, consistent with $0.3 billion in the first quarter of fiscal 2008
and a decrease from $0.5 billion in the second quarter of 2007, as strong high
grade debt underwriting revenues were offset by continued weakness in high
yield new issuance. Equity underwriting revenues were $0.3 billion, an
increase from $0.2 billion in the first quarter of fiscal 2008 and consistent
with $0.3 billion in the second quarter of 2007. Merger and acquisition
advisory revenues were $0.2 billion, a decrease from $0.3 billion in both the
first quarter of fiscal 2008 and the second quarter of 2007.
Investment Management reported net revenues of $0.8 billion, a decrease
from record revenues of $1.0 billion in the first quarter of fiscal 2008 and
consistent with $0.8 billion in the second quarter of fiscal 2007. Asset
Management revenues were $0.5 billion, a decrease from $0.6 billion in the
first quarter of fiscal 2008 on lower gains from minority interests in third
party alternative investment managers, and consistent with $0.5 billion in the
second quarter of 2007. The Firm reported assets under management of $277
billion, consistent with the prior quarter. Private Investment Management
reported revenues of $0.4 billion, consistent with $0.4 billion in the first
quarter of fiscal 2008 and an increase from $0.3 billion in the second quarter
of 2007, with strength across both fixed income and equity products.
Firm Profitability and Capital
Non-interest expenses for the second quarter of fiscal 2008 were $3.4
billion, compared to $2.8 billion in the first quarter of fiscal 2008 and $3.6
billion in the second quarter of fiscal 2007. Compensation expense was
approximately $2.3 billion in the second quarter of 2008, compared to $1.8
billion in the first quarter of fiscal 2008. Non-personnel expenses for the
period were approximately $1.1 billion, compared to $1.0 billion in the first
quarter of fiscal 2008. The tax rate was 32.1%.
As of May 31, 2008, Lehman Brothers' total stockholders' equity was $26.3
billion, and total long-term capital (stockholders' equity and long-term
borrowings, excluding any borrowings with remaining maturities of less than
twelve months) was $154.5 billion. Book value per common share was $34.21.
In June, Lehman Brothers closed a $4.0 billion public offering of 143
million shares of common stock as well as a $2.0 billion public offering of 2
million shares of 8.75% non-cumulative mandatory convertible preferred stock,
Series Q. The capital and equity statistics in this Press Release do not
reflect the impact of these offerings.
Lehman Brothers (ticker symbol: LEH), an innovator in global finance,
serves the financial needs of corporations, governments and municipalities,
institutional clients, and high net worth individuals worldwide. Founded in
1850, Lehman Brothers maintains leadership positions in equity and fixed
income sales, trading and research, investment banking, private investment
management, asset management and private equity. The Firm is headquartered in
New York, with regional headquarters in London and Tokyo, and operates in a
network of offices around the world. For further information about Lehman
Brothers' services, products and recruitment opportunities, visit the Firm's
Web site at www.lehman.com. Lehman Brothers Inc. is a member of SIPC.
Conference Call
A conference call to discuss the Firm's financial results and outlook will
be held today at 10:00 a.m. ET. The call will be open to the public. For
members of the public who would like to access the conference call, it will be
available through the "Shareholders" section of the Firm's Web site under the
subcategory "Events and Presentations." The conference call will also be
available by phone by dialing, from the U.S., 1-800-988-9465 or, from outside
the U.S., 1-312-470-7006 at least fifteen minutes prior to the start of the
conference call. The pass code for all callers is "3713056". For those
unable to listen to the live broadcast, a replay will be available on the
Firm's Web site or by dialing 1-800-890-3520 (domestic) or 1-203-369-3844
(international). The replay will be available immediately after the beginning
of the call and will remain available on the Lehman Brothers Web site and by
phone until 11:59 p.m. ET on July 16, 2008.
Please direct any questions regarding the conference call to Ed Grieb at
212-526-0588, egrieb@lehman.com.
Cautionary Note Regarding Forward-Looking Statements
This Press Release may contain forward-looking statements. These
statements are not historical facts, but instead represent only the Firm's
expectations, estimates and projections regarding future events. These
statements are not guarantees of future performance and involve certain risks
and uncertainties that are difficult to predict, which may include risks and
uncertainties relating to market fluctuations and volatility, industry
competition and changes in the competitive environment, investor sentiment,
liquidity and credit ratings, credit exposures, operational risks and legal
and regulatory matters. The Firm's actual results and financial condition may
differ, perhaps materially, from the anticipated results and financial
condition in any such forward-looking statements and, accordingly, readers are
cautioned not to place undue reliance on such statements. The Firm undertakes
no obligation to update any forward-looking statements, whether as a result of
new information, future events or otherwise. For more information concerning
the risks and other factors that could affect the Firm's future results and
financial condition, see "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Firm's most
recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
LEHMAN BROTHERS HOLDINGS INC.
SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(Dollars in millions, except share data)
At or for the Quarter Ended
May 31, Feb 29, Nov 30, Aug 31, May 31,
2008 2008 2007 2007 2007
Income Statement
Net Revenues $(668) $3,507 $4,390 $4,308 $5,512
Non-Interest Expenses:
Compensation and
Benefits 2,325 1,841 2,164 2,124 2,718
Non-personnel
Expenses 1,094 1,003 996 979 915
Income before provision
for income taxes (4,087) 663 1,230 1,205 1,879
Net Income (2,774) 489 886 887 1,273
Net Income Applicable
to Common Stock (2,873) 465 870 870 1,256
Earnings per Common Share:
Basic ($5.14) $0.84 $1.60 $1.61 $2.33
Diluted ($5.14) $0.81 $1.54 $1.54 $2.21
Financial Ratios (%)
Return on Average
Common Stockholders'
Equity (annualized)(a) NM 8.6% 16.6% 17.1% 25.8%
Return on Average
Tangible Common
Stockholders' Equity
(annualized) (b) NM 10.6% 20.6% 21.1% 31.6%
Pre-tax Margin NM 18.9% 28.0% 28.0% 34.1%
Compensation and
Benefits/Net Revenues NM 52.5% 49.3% 49.3% 49.3%
Effective Tax Rate 32.1% 26.3% 27.9% 26.4% 32.3%
Financial Condition
Total Assets $639,000 $786,035 $691,063 $659,216 $605,861
Net Assets (c)(i) 326,899 396,673 372,959 357,102 337,667
Common Stockholders'
Equity (d) 19,283 21,839 21,395 20,638 20,034
Total Stockholders'
Equity (d) 26,276 24,832 22,490 21,733 21,129
Total Stockholders'
Equity Plus Junior
Subordinated Notes (e) 31,280 29,808 27,230 26,647 25,650
Tangible Equity
Capital (e) 27,179 25,696 23,103 22,164 21,881
Total Long-Term
Capital (f) 154,458 153,117 145,640 142,064 121,948
Book Value per Common
Share (g) 34.21 39.45 39.44 38.29 37.15
Leverage Ratio (h) 24.3x 31.7x 30.7x 30.3x 28.7x
Net Leverage Ratio (i) 12.0x 15.4x 16.1x 16.1x 15.4x
Other Data (#s)
Employees 26,189 28,088 28,556 28,783 28,323
Assets Under Management
(in billions) $277 $277 $282 $275 $263
Common Stock Outstanding
(in millions) 552.7 551.4 531.9 529.4 530.2
Weighted Average
Shares (in millions):
Basic 559.3 551.5 542.6 540.4 538.2
Diluted 559.3 572.8 563.7 565.8 568.1
* See Footnotes to Selected Statistical Information.
LEHMAN BROTHERS HOLDINGS INC.
FOOTNOTES TO SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
NM = Not Meaningful
(a) Return on average common stockholders' equity is computed by dividing
annualized net income applicable to common stock for the period by
average common stockholders' equity. See the reconciliation on
page 12.
(b) Return on average tangible common stockholders' equity is computed by
dividing annualized net income applicable to common stock for the
period by average tangible common stockholders' equity. Average
tangible common stockholders' equity equals average common
stockholders' equity less average identifiable intangible assets and
goodwill. See the reconciliation on page 12. Management believes
tangible common stockholders' equity is a meaningful measure because
it reflects the common stockholders' equity deployed in our
businesses.
(c) We calculate net assets by excluding from total assets: (i) cash and
securities segregated and on deposit for regulatory and other
purposes; (ii) collateralized lending agreements; and (iii)
identifiable intangible assets and goodwill. See reconciliation on
page 15. Net assets as presented are not necessarily comparable to
similarly-titled measures provided by other companies in the
securities industry because of different methods of presentation.
(d) Effective December 1, 2007, we adopted Financial Accounting Standards
Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in
Income Taxes -- an Interpretation of FASB Statement No. 109. The
aggregate impact to opening retained earnings from the adoption of
this standard was a decrease of approximately $178 million. Effective
December 1, 2006, we adopted both Statement of Financial Accounting
Standards ("SFAS") No. 157, Fair Value Measurements and SFAS No.
159, The Fair Value Option for Financial Assets and Financial
Liabilities. The aggregate impact to opening retained earnings from
the adoption of these standards was an after-tax increase of
approximately $67 million (approximately $113 million pre-tax).
(e) We calculate tangible equity capital by including stockholders'
equity and junior subordinated notes and excluding identifiable
intangible assets and goodwill. These measures may not be comparable
to similarly-titled calculations by other companies as a result of
different calculation methodologies. We believe tangible equity
capital to be a more meaningful measure of our equity base as it
includes stockholders' equity and junior subordinated notes (which we
consider to be equity-like instruments due to their subordinated and
long-term nature) and excludes identifiable intangible assets and
goodwill (which are fully supported by equity). Prior to fiscal year
2008, our definition for tangible equity capital limited the amount
of junior subordinated notes and preferred stock included in the
calculation to 25% of tangible equity capital. The amounts excluded
were approximately $237 million, $375 million and $117 million in the
fourth, third and second quarters of 2007, respectively. See the
reconciliation on page 15.
(f) Total long-term capital includes long-term borrowings (excluding any
borrowings with remaining maturities within one year of the financial
statement date) and total stockholders' equity. We believe total
long-term capital is useful to investors as a measure of our
financial strength.
(g) The book value per common share calculation includes amortized
restricted stock units granted under employee stock award programs,
which have been included in total stockholders' equity.
(h) Leverage ratio is defined as total assets divided by total
stockholders' equity.
(i) Net leverage ratio is defined as net assets (see note (c) above)
divided by tangible equity capital (see note (e) above). We believe
net leverage based on net assets to be a more useful measure of
leverage, because it excludes certain low-risk, non-inventory assets
and utilizes tangible equity capital as a measure of our equity base.
Net leverage as presented is not necessarily comparable to
similarly-titled measures provided by other companies in the
securities industry because of different methods of presentation.
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
Quarter Ended % Change from
Feb May
May 31, Feb 29, May 31, 29, 31,
2008 2008 2007 2008 2007
Revenues:
Principal transactions $(3,534) $773 $2,889
Investment banking 858 867 1,150
Commissions 639 658 568
Interest and dividends 7,771 9,635 10,558
Asset management and other 506 437 414
Total revenues 6,240 12,370 15,579
Interest expense 6,908 8,863 10,067
Net revenues (668) 3,507 5,512 NM NM
Non-interest expenses:
Compensation and
benefits(a) 2,325 1,841 2,718
Technology and
communications 309 302 287
Brokerage, clearance and
distribution fees 252 253 201
Occupancy 188 185 152
Professional fees 100 98 120
Business development 87 89 100
Other (b) 158 76 55
Total non-interest
expenses 3,419 2,844 3,633 20% -6%
Income before provision for
income taxes (4,087) 663 1,879
Provision for income taxes (1,313) 174 606
Net income $(2,774) $489 $1,273 NM NM
Net income applicable to NM NM
common stock $(2,873) $465 $1,256
Earnings per common share:
Basic ($5.14) $.84 $2.33 NM NM
Diluted ($5.14) $.81 $2.21 NM NM
(a) For the quarter ended May 31, 2008, approximately $140 million of
severance is included in Compensation and benefits.
(b) For the quarters ended May 31, 2008 and February 29, 2008,
approximately $20 million and $34 million, respectively, of costs
associated with the restructuring of the Firm's global residential
mortgage origination business have been included in Other expenses.
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
% Change
Six Months Ended from
May 31, May 31,
2008 2007 2007
Revenues:
Principal transactions $(2,762) $5,810
Investment banking 1,725 2,000
Commissions 1,297 1,108
Interest and dividends 17,405 19,647
Asset management and other 945 809
Total revenues 18,610 29,374
Interest expense 15,771 18,815
Net revenues 2,839 10,559 (73)%
Non-interest expenses:
Compensation and benefits (a) 4,166 5,206
Technology and communications 612 553
Brokerage, clearance and
distribution fees 504 395
Occupancy 373 298
Professional fees 198 218
Business development 175 184
Other (b) 235 127
Total non-interest expenses 6,263 6,981 (10)%
Income before provision for income
taxes (3,424) 3,578
Provision for income taxes (1,139) 1,159
Net income $(2,285) $2,419 NM
Net income applicable to common
stock $(2,408) $2,385 NM
Earnings per common share:
Basic ($4.33) $4.42 NM
Diluted ($4.33) $4.17 NM
(a) For the six months ended May 31, 2008, approximately $170 million of
severance is included in Compensation and benefits.
(b) For the six months ended May 31, 2008, approximately $54 million of
costs associated with the restructuring of the Firm's global
residential mortgage origination business have been included in other
expenses.
LEHMAN BROTHERS HOLDINGS INC.
BUSINESS SEGMENT AND GEOGRAPHIC NET REVENUES
(Preliminary and Unaudited)
(In millions)
Business Segments(a) Quarter Ended % Change from
May 31, Feb 29, May 31, Feb 29, May 31,
2008 2008 2007 2008 2007
Capital Markets:
Fixed Income $(2,975) $262 $1,902
Equities 601 1,410 1,692
Total (2,374) 1,672 3,594 NM NM
Investment Banking:
Global Finance -
Debt 288 322 540
Global Finance -
Equity 330 215 333
Advisory Services 240 330 277
Total 858 867 1,150 (1)% (25)%
Investment Management:
Asset Management 496 618 460
Private Investment
Management 352 350 308
Total 848 968 768 (12)% 10 %
Total Net Revenues $(668) $3,507 $5,512 NM NM
Geographic Net Revenues Quarter Ended % Change from
May 31, Feb 29, May 31, Feb 29, May 31,
2008 2008 2007 2008 2007
Europe and the Middle
East $(499) $760 $1,829
Asia-Pacific 57 1,348 762
Total Non-Americas (442) 2,108 2,591 NM NM
U.S. (290) 1,342 2,888
Other Americas 64 57 33
Total Americas (226) 1,399 2,921 NM NM
Total Net Revenues $(668) $3,507 $5,512 NM NM
(a) Certain prior-period amounts reflect reclassifications to conform to
the presentation in the current period.
LEHMAN BROTHERS HOLDINGS INC.
BUSINESS SEGMENT AND GEOGRAPHIC NET REVENUES
(Preliminary and Unaudited)
(In millions)
Business Segments (a) Six Months Ended May 31, % Change from
2008 2007 May 31, 2007
Capital Markets:
Fixed Income $(2,714) $4,075
Equities 2,011 3,021
Total (703) 7,096 NM
Investment Banking:
Global Finance - Debt 610 968
Global Finance - Equity 545 508
Advisory Services 570 524
Total 1,725 2,000 (14)%
Investment Management:
Asset Management 1,114 876
Private Investment
Management 703 587
Total 1,817 1,463 24%
Total Net Revenues $2,839 $10,559 (73)%
Geographic Net Revenues Six Months Ended May 31, % Change from
2008 2007 May 31, 2007
Europe and the Middle East $261 $3,197
Asia-Pacific 1,405 1,356
Total Non-Americas 1,666 4,553 (63)%
U.S. 1,052 5,916
Other Americas 121 90
Total Americas 1,173 6,006 (80)%
Total Net Revenues $2,839 $10,559 (73)%
(a) Certain prior-period amounts reflect reclassifications to conform to
the presentation in the current period.
LEHMAN BROTHERS HOLDINGS INC.
RECONCILIATION OF AVERAGE STOCKHOLDERS' EQUITY TO
AVERAGE TANGIBLE COMMON STOCKHOLDERS' EQUITY
(Preliminary and Unaudited)
(In millions)
Quarter Ended
May 31, Feb 29, Nov 30, Aug 31, May 31,
2008 2008 2007 2007 2007
Annualized net income
applicable to
common stock $(11,491) $1,860 $3,479 $3,480 $5,025
Average stockholders'
equity $25,554 $23,661 $22,112 $21,431 $20,567
Less: average preferred
stock (4,993) (2,044) (1,095) (1,095) (1,095)
Average common
stockholders' equity 20,561 21,617 21,017 20,336 19,472
Less: average
identifiable intangible
assets and goodwill (4,107) (4,120) (4,118) (3,880) (3,592)
Average tangible common
stockholders' equity $16,454 $17,497 $16,899 $16,456 $15,880
Return on average common
stockholders' equity NM 8.6% 16.6% 17.1% 25.8%
Return on average
tangible common
stockholders' equity NM 10.6% 20.6% 21.1% 31.6%
LEHMAN BROTHERS HOLDINGS INC.
ASSETS UNDER MANAGEMENT
(Preliminary and Unaudited)
Composition of Assets Under Management At
(In billions) May 31, Feb 29, May 31,
2008 2008 2007
Equity $109 $101 $108
Fixed Income 75 77 65
Money Markets 54 65 64
Alternative Investments 39 34 26
Assets Under Management $277 $277 $263
Quarter Ended
May 31, Feb 29, May 31,
Assets Under Management Rollforward 2008 2008 2007
(In billions)
Opening balance $277 $282 $236
Net additions/(subtractions) (9) - 16
Net market appreciation/(depreciation) 9 (5) 11
Total increase/(decrease) - (5) 27
Ending balance $277 $277 $263
LEHMAN BROTHERS HOLDINGS INC.
VALUE-AT-RISK (VaR) SUMMARY
(Preliminary and Unaudited)
VaR - Historical Simulation(a)
(In millions)
Average VaR Three Three Months
At Months Ended Ended May 31,
May 31, Feb 29, May 31, Feb 29, 2008
2008 2008 2008 2008 High Low
Interest rate risk $88 $90 $109 $103 $127 $87
Equity price risk 41 43 46 49 61 32
Foreign exchange risk 10 14 12 13 16 9
Commodity risk 12 11 12 13 16 9
Diversification benefit (47) (52) (56) (48)
$104 $106 $123 $130 $140 $103
Average VaR Three Three Months
At Months Ended Ended May 31,
May 31, Feb 29, May 31, Feb 29, 2008
2008 2008 2008 2008 High Low
Weighted Basis $104 $106 $123 $130 $140 $103
Un-Weighted Basis 75 89 84 97 100 75
(a) VaR is an approximation of earnings and loss distributions a
portfolio would realize if current market risks were as observed in
historical markets. VaR for our financial instrument inventory
positions, estimated at a 95% confidence level over a one-day time
horizon. This means that there is a 1-in-20 chance that daily
trading net revenue losses on a particular day would exceed the
reported VaR.
LEHMAN BROTHERS HOLDINGS INC.
LEVERAGE and NET LEVERAGE CALCULATIONS
(Preliminary and Unaudited)
(In millions)
At
May 31, Feb 29, Nov 30, Aug 31, May 31,
2008 2008 2007 2007 2007
Net assets:
Total assets $639,000 $786,035 $691,063 $659,216 $605,861
Less:
Cash and
securities
segregated and
on deposit for
regulatory and
other purposes (13,000) (16,569) (12,743) (10,579) (7,154)
Collateralized
lending
agreements (295,000) (368,681) (301,234) (287,427) (257,388)
Identifiable
intangible
assets and
goodwill (4,101) (4,112) (4,127) (4,108) (3,652)
Net assets $326,899 $396,673 $372,959 $357,102 $337,667
Tangible equity
capital:
Total
stockholders'
equity $26,276 $24,832 $22,490 $21,733 $21,129
Junior
subordinated
notes (a) 5,004 4,976 4,740 4,539 4,404
Less:
Identifiable
intangible
assets and
goodwill (4,101) (4,112) (4,127) (4,108) (3,652)
Tangible equity
capital (a) $27,179 $25,696 $23,103 $22,164 $21,881
Leverage (total
assets / total
stockholders'
equity) 24.3x 31.7x 30.7x 30.3x 28.7x
Net leverage (net
assets / tangible
equity capital) 12.0x 15.4x 16.1x 16.1x 15.4x
(a) Prior to fiscal year 2008, our definition for tangible equity capital
limited the amount of junior subordinated notes and preferred stock
included in the calculation to 25% of tangible equity capital. The
amounts excluded were approximately $237 million, $375 million and
$117 million in the fourth, third and second quarters of 2007,
respectively.
Lehman Brothers Holdings Inc. Attachment I
Mark to market adjustments
(Unaudited)
Gain/(Loss)
(in billions)
For the Three For the Six Fiscal Year
Months Ended Months Ended 2007 through
May 31, 2008 May 31, 2008 May 31, 2008(1)
Gross Net(2) Gross Net(2) Gross Net(2)
Residential mortgage-related
positions $(2.4) $(2.0) $(5.4) $(2.8) $(10.1) $(4.1)
Other asset-backed
-related positions (0.4) (0.4) (0.6) (0.5) (1.2) (0.7)
Commercial mortgage and real
estate-related investments (3) (0.9) (1.3) (2.3) (2.3) (3.7) (3.2)
Acquisition finance facilities
(funded and unfunded) (0.3) (0.4) (1.0) (0.9) (2.0) (1.3)
Subtotal $(4.0) $(4.1) $(9.3) $(6.5) $(17.0) $(9.3)
Valuation of debt liabilities(4) 0.4 0.4 1.0 1.0 1.9 1.9
Total $(3.6) $(3.7) $(8.3) $(5.5) $(15.1) $(7.4)
(1) Substantially all of these adjustments occurred in the twelve months
ended May 31, 2008.
(2) The net impact represents the remaining impact from the components
after deducting the impact of certain economic risk mitigation
strategies. Gross balances shown do not reflect the impact of
economic hedges.
(3) Included within this category are valuation adjustments attributable
to commercial mortgage-related positions, equity investments in real
estate companies and debt and equity investments in parcels of land
and related physical property.
(4) Represents the amount of gains on debt liabilities for which the Firm
elected to fair value under SFAS No. 159. These gains represent the
effect of changes in the Firm's credit spread and exclude any
Interest income or expense as well as any gain or loss from the
embedded derivative components of these instruments. Changes in
valuations are allocated to the businesses in relation to the cash
generated by, or funding requirements of, the underlying positions.
Lehman Brothers Holdings Inc. Attachment II
Mortgage and asset-backed securities(1)
(Unaudited)
(in billions)
At Percent Inc / (Dec)
Nov. 30, Feb. 29, May 31, May vs. May vs.
2007 2008 2008 Feb. Nov.
Residential mortgages
Securities $16.7 $18.2 $15.0
Whole loans 14.2 11.9 8.3
Servicing and other 1.2 1.7 1.6
Subtotal 32.1 31.8 24.9 (22)% (22)%
Commercial mortgages
Whole loans $26.2 $24.9 $19.9
Securities and other 12.7 11.2 9.5
Subtotal 38.9 36.1 29.4 (19)% (24)%
Other asset-backed securities $6.2 $6.5 $6.5
Total $77.2 $74.4 $60.8 (18)% (21)%
(1) Balances shown exclude those for which the Company transferred
mortgage-related loans to securitization vehicles where such
transfers were accounted for as secured financings rather than sales
under SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities -- a replacement
of FASB Statement No. 125. The securitization vehicles issued
securities that were distributed to investors. The Company does not
consider itself to have economic exposure to the underlying assets in
those securitization vehicles beyond the Company's retained interests
(which are included above).
Lehman Brothers Holdings Inc. Attachment III
Residential mortgage-related
(Unaudited)
(in billions)
At Percent Inc / (Dec)
Nov. 30, Feb. 29, May 31, May vs. May vs.
2007 2008 2008 Feb. Nov.
Residential mortgages
U.S.
Alt-A/Prime (1) $12.7 $14.6 $10.2
Subprime/Second Lien (2) 5.3 4.0 2.8
Other U.S. 2.3 2.1 1.3
Subtotal 20.3 20.7 14.3 (31)% (30)%
Europe $10.2 $9.5 $9.3
Asia-Pacific 0.5 0.7 0.7
Other asset-backed 1.1 0.9 0.6
Total $32.1 $31.8 $24.9 (22)% (22)%
(1) For purposes of this presentation, the Company has categorized U.S.
residential mortgages frequently referred to as Alt-A within Prime.
The Company generally defines U.S. Alt-A residential mortgage loans
as those associated with borrowers who may have creditworthiness of
"prime" quality but may have traits that prevent the loans from
qualifying as "prime." Those traits could include documentation
deficiencies related to the borrowers' income disclosure, referred to
as partial or no documentation; or the underlying property may not be
owner occupied despite full or lower documentation of the borrowers'
income levels.
(2) The Company generally defines U.S. subprime residential mortgage
loans as those associated with borrowers having a credit score in the
range of 620 or lower using the Fair Isaac Corporation's statistical
model, or having other negative factors within their credit profiles.
We also include residential mortgage loans that were originated
through BNC Mortgage LLC ("BNC") prior to its closure in the third
quarter of the Company's 2007 fiscal year. BNC served borrowers with
subprime qualifying credit profiles but also served borrowers with
stronger credit history as a result of broker relationships or
product offerings and such loans are also included in our subprime
business activity.
Lehman Brothers Holdings Inc. Attachment IV
Residential mortgage-related
(Unaudited)
(in billions)
Percent
At Change
Feb. 29, May 31, May vs.
2008 2008 Feb.
Residential mortgages
U.S.
Alt-A/Prime
Whole loans $3.7 $2.1
Securities:
AAA 6.4 3.9
Other RMBS(1) 2.8 2.6
Servicing and Other 1.7 1.6
Subtotal 14.6 10.2 (30)%
Subprime/Second Lien
Whole loans $1.3 $1.1
Securities:
AAA 1.6 0.9
Other RMBS(1) 1.1 0.8
Servicing and Other - -
Subtotal 4.0 2.8 (30)%
Other U.S.
Whole loans $1.6 $1.0
Securities 0.5 0.3
Servicing and Other - -
Subtotal 2.1 1.3 (38)%
Europe
Whole loans $5.0 $3.6
Securities 4.5 5.7
Servicing and Other - -
Subtotal 9.5 9.3 (2)%
Asia-Pacific
Whole loans $0.3 $0.5
Securities 0.4 0.2
Servicing and Other - -
Subtotal 0.7 0.7 -
Asset-backed securities 0.9 0.6 (33)%
Total $31.8 $24.9 (22)%
(1) Includes amounts related to residuals.
Lehman Brothers Holdings Inc. Attachment V
Commercial mortgage and real estate-related investments
(Unaudited)
(in billions)
At Percent Inc / (Dec)
Nov. 30, Feb. 29, May 31, May vs. May vs.
2007 2008 2008 Feb. Nov.
Commercial mortgages
Whole loans $26.2 $24.9 $19.9
Securities and other 12.7 11.2 9.5
Subtotal 38.9 36.1 29.4 (19)% (24)%
Real estate held for sale (1) $12.8 $12.9 $10.4
Total $51.7 $49.0 $39.8 (19)% (23)%
(1) These positions are reflected within Real estate held for sale and
are accounted for at the lower of its carrying amount or fair value
less cost to sell. The Company makes equity and debt investments in
entities whose underlying assets are real estate held for sale. The
Company consolidates those entities in which we are the primary
beneficiary in accordance with FIN No. 46-R, Consolidation of
Variable Interest Entities (revised December 2003)-an interpretation
of ARB No. 51. The Company does not consider itself to have economic
exposure to the total underlying assets in those entities. The
amounts presented are the Company's net investment and therefore
exclude the amounts that have been consolidated but for which the
Company does not consider itself to have economic exposure.
Lehman Brothers Holdings Inc. Attachment VI
Commercial mortgage and real estate-related investments
(Unaudited)
(in billions)
May 31, 2008 vs.
At February 29, 2008
May 31, Inc / (Dec) At May 31, 2008
2008 Dollars Percent Americas Europe Asia
Whole loans
Senior $19.5 $(4.8) (20)% $10.7 $4.7 $4.1
Mezzanine 5.9 (1.3) (18)% 4.6 0.7 0.6
NPLs(5) 1.9 (0.1) (3)% 0.2 - 1.7
Equity 7.2 (1.0) (12)% 4.5 1.5 1.2
Securities 5.3 (2.2) (29)% 0.9 3.8 0.6
Total $39.8 $20.9 $10.7 $8.2
May 31, 2008
Average
Number of Position At May 31, 2008
Positions Value(1) WALTV(2) WAM(3) WALA(4) Fixed Float
Whole loans
Senior 875 $22.2 76 % 34 18 9 % 91 %
Mezzanine 299 19.8 78 % 26 13 15 % 85 %
NPLs(5) 327 5.8
Equity 670 10.7
Inv. Non-Inv.
Grade Grade AA or Better
Securities 371 14.2
Total 2,542 $15.7 94 % 6 % 77 %
(1) In millions.
(2) WALTV is weighted average loan to value at origination.
(3) WAM is weighted average number of months remaining to fully extended
maturity.
(4) WALA is weighted average loan age in months.
(5) NPLs are loans purchased as non-performing loans.
Lehman Brothers Holdings Inc. Attachment VII
Acquisition Finance Facilities (Funded and Unfunded) (1)
(Unaudited)
(in billions)
At Percent Inc / (Dec)
Nov. 30, Feb. 29, May 31, May vs. May vs.
2007 2008 2008 Feb. Nov.
High grade
Contingent $10.2 $7.2 $1.7
Unfunded - 0.8 1.1
Funded 1.7 2.9 3.7
Subtotal 11.9 10.9 6.5 (40)% (45)%
High yield
Contingent $9.7 $3.7 $0.4
Unfunded 2.7 2.2 2.1
Funded 11.5 11.9 9.0
Subtotal 23.9 17.8 11.5 (35)% (52)%
Total $35.8 $28.7 $18.0 (37)% (50)%
(1) For purposes of this presentation, high yield amounts are defined as
commitments to or loans to companies rated BB+ or lower or equivalent
ratings by recognized credit rating agencies, as well as non-rated
securities or loans that in the Company's management's opinion are
non-investment grade. Additionally and for purposes of this
presentation, the Company has categorized amounts contingently
committed as "Contingent"; amounts that were contingently committed
in the prior period but unfunded in the current period as "Unfunded;"
and amounts that were contingently committed in the prior period but
funded in the current period as "Funded."
SOURCE Lehman Brothers Holdings Inc.
http://www.lehman.com/
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