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Lehman Brothers announces record quarterly lo -

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Lehman Brothers announces record quarterly loss

The World Today - Thursday, 11 September , 2008 12:52:47

Reporter: Peter Ryan

ELEANOR HALL: The US investment bank Lehman Brothers has just delivered the biggest loss in its
158-year history and remains on the brink of collapse.

The Wall Street institution today reported a $4-billion quarterly dive and announced a huge
sell-off of its assets in an effort to survive.

As business editor Peter Ryan reports, Lehman Brothers had brought its results announcement forward
in an effort to limit the plunge in its share price.

PETER RYAN: Lehman Brothers is a Wall Street survivor. It's endured every modern crisis from the
American Civil War to the Great Depression, through to the Asian economic meltdown. But will it be
around when the sub-prime mortgage meltdown is a compelling case study for economics students?

Lehman's chief executive Richard Fuld exhibited some shaky optimism when he unveiled a survival
strategy along with a quarterly loss of $US4-billion.

RICHARD FULD: We have put in place a credible plan. Today's strategic actions, each of which is
significant in its own right, taken together as a whole, significantly reduces our remaining risk
and greatly improves our ability to create value for our shareholders.

PETER RYAN: The announcement was brought forward to stem yesterday's bloodbath after the withdrawal
of South Korea's rescue plan sparked a 45 per cent share market plunge.

Even though Lehman Brothers is now selling half its asset management business, writing down debt
and cutting investor dividends, analysts say the Korea Development Bank had some very good reasons
for cold feet.

PETER MORRISSEY: Its balance sheet is too messy for anyone to become involved with it. Only a fool
would acquire this company in whole right now. It's got to be cleaned up first.

Economist Peter Morrissey of the University of Maryland says Lehman Brothers was typical of other
Wall Street banks, up to their necks in bad real estate investments and mortgage-backed securities
in the United States and Britain.

With no new bail-out in sight, he says Lehman needs to liquidate the bad decisions without delay.

PETER MORRISSEY: Selling the real estate assets for what they might be worth, which is not zero,
they're worth something. You know, some of those mortgages will be paid off, some of those
properties may be worth less than before but they're worth something. So you sell them off to see
what you've got.

And then you have to see what you can get for your good assets that are not essential to it being
an investment bank. And you're back to an old-fashioned merchant bank which does mergers and
acquisitions, initial share offerings and so forth. That's what could be sold.

PETER RYAN: Lehman Brothers is the second Wall Street bank to go to the brink this year. Back in
March, Bear Stearns was rescued by the US Federal Reserve which negotiated a forced marriage with
JP Morgan Chase.

But Peter Morrissey says another government-backed bail out would send the wrong message.

PETER MORRISSEY: It's about time the folks in New York learned that they can fail so that they
conduct their business in a more responsible fashion. What's more, it is possible that new merchant
banks will emerge and they will likely emerge out of the regional banks in the United States to
take its place.

Now it's going to take some time, but having these crippled investment banks in New York is not
very favourable to the US credit market and either they clean up their balance sheets, get
themselves straightened out and fly straight again, or they go out of business and are replaced.

PETER RYAN: The growing sentiment that institutions must be allowed to fail comes after this week's
government bail-out of the mortgage giants Fannie Mae and Freddie Mac.

While most commentators agree their failure would have sparked a global financial meltdown, the
focus is now turning on payouts for the Fannie and Freddie chiefs. For example, Freddie Mac's
chairman Richard Syron is expected to receive $15-million with more than half of that in cash.

With the economy now a big issue in the presidential race, both Barak Obama and John McCain are
using the payouts as examples of corporate excess in tough times.

BARACK OBAMA: Taxpayers here in Dayton would not want to hear that part of this package includes a
multi-million dollar bonuses particularly when so many people here are out of work.

JOHN MCCAIN: We cannot allow this to turn into a bail-out of Wall Street speculators and
irresponsible executives (applause and cheering). They cannot be rewarded.

PETER RYAN: The worsening outlook for Lehman Brothers is continuing to worry Australian investors.
Local banking stocks fell as much as 3.5 per cent this morning with still no end to the credit
crisis in sight.

ELEANOR HALL: Business editor Peter Ryan.