Lehman Brothers may go for $4 billion write-down in Q3, feel JPMorgan analysts

Lehman Brothers Holdings Inc., America's fourth-largest bank, may write down about $4 billion in credit-related investments and other assets when it reports fiscal third-quarter earnings, JPMorgan Chase & Co. analysts said.

It will be another difficult quarter for Lehman, analyst Kenneth Worthington said. Lehman continues to have significant exposure to mortgages and asset-backed securities, totaling $61 billion, he noted in the report co-authored with his JPMorgan colleagues.

Lehman, the largest underwriter of mortgage bonds before the sub-prime market collapsed, has slumped 77 per cent in New York trading as it struggles to pare its debt holdings. The bank has reported write-downs and credit losses of $8.2 billion in the past 12 months and has undergone a drastic shakedown of the senior management. (See: Financial crisis claims jobs of Lehman CFO and COO)

Worthington expects Lehman to post a third-quarter loss of $3.30 a share, versus his prior profit view of $0.35, and widened his 2008 loss view for the company to $6.77 a share from his prior loss estimate of $2.35 a share.

"While we view Lehman as well managed and nimble, deteriorating fixed income asset valuations and leveraged loans have led to downward earnings revisions," he said, while maintaining a ''neutral'' rating on the stock.

Worthington is not alone with his dire predictions. Analysts including Merrill Lynch's Guy Moszkowski, Deutsche Bank's Michael Mayo and Fox-Pitt's David Trone have also forecast a third-quarter loss at Lehman.

Moszkowski, in a note to clients on 28 July, said that Lehman wants to sell 20 per cent of its more than $60 billion of ''distressed'' assets in the third quarter. He expects the firm to post a $2.5 billion write-down on home loans in the quarter.