12 Sep 2008, Alastair Marsh, Risk magazine
Following significant mark-to-market writedowns on commercial and residential mortgages, the bank announced a plan to reduce its balance sheet risk, including the sale of its residential mortgage portfolio, the creation of a spinoff company to manage its commercial real estate assets, and the sale of a majority stake in its investment management division.
In order to reduce its residential mortgage exposures, which fell 31% in Q3 to $17.2 billion, Lehman Brothers is negotiating to sell its residential mortgage portfolio to BlackRock Financial Management. The bank estimates that a sale could see mortgage exposures drop further to $13.2 billion.
The bank’s commercial real estate exposure fell from $39.8 billion to $32.6 billion in the quarter. To reduce this further, Lehman Brothers intends to spin off $25-30 billion of its commercial mortgage portfolio into a separate company, Real Estate Investments Global, in Q1 2009.
Lehman Brothers also announced its intention to sell its asset management, private equity and wealth management businesses - essentially the entire investment management division – in order to raise more capital.
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