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Investment Bank Stocks Tumble

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By JOE BEL BRUNO

The Associated Press

Published: July 15, 2008

NEW YORK - Investors bailed out of investment bank stocks Monday as concerns about the credit crisis prompted one analyst to call for Lehman Brothers Holdings to go private.

Financials such as Merrill Lynch & Co. and Morgan Stanley dropped sharply amid more uncertainty about their fate. The most dramatic drop came from Lehman, which tumbled to a nine-year low on fears it does not have enough capital to stay in business.

The decline in investment bank shares had David Trone, an analyst with Fox-Pitt Kelton, say the only way to stop Lehman's 79 percent stock dive this year is to sell the company to a buyout consortium.

"This would eliminate the disconnect between Lehman's true financial condition and current stock price by eliminating the run-on-the-bank discount," he said.

Investors have retreated from financial stocks to such an extent that nearly $180 billion of market value has been wiped from the four biggest U.S. investment houses in the past 12 months. That's enough money to pay every American roughly $600 each.

The financials' battered stock prices are troubling to analysts because any market rumors could send stocks plunging further and deplete companies' capital to such an extent that an investment bank might not recover.

For instance, shares of Lehman Brothers slid last month on rumors that customers were pulling back business. Though the investment bank denied the talk, the Securities and Exchange Commission is investigating whether the trading floor chatter was started by investors looking to short the stock.

Those same kind of rumors nearly caused the collapse of Bear Stearns Cos. in March before the government stepped in and sold the company to JPMorgan Chase & Co. Analysts think the government's plan to help Fannie Mae and Freddie Mac might be its last intervention, and that the remaining investment banks would be left to fend for themselves.

"The U.S. apparently has been unable to find investors for Fannie and Freddie," said Richard Bove, an analyst with Ladenburg Thalmann. "This means that the financial markets are in a worse crisis than I have dreamed would be possible."

The market might get a better indication of how the companies are faring when three major financial institutions report earnings this week. Citigroup, JPMorgan and Merrill Lynch are expected to report more write-downs for the second quarter, adding to the nearly $300 billion already taken by global banks and brokerages.

Merrill Lynch, the world's largest brokerage, is expected to report $6 billion of write-downs Thursday afternoon. Chief executive John Thain is said to be interested in raising additional capital through the sale of its stake in money manager BlackRock or financial data and news provider Bloomberg.

JPMorgan is expected to see a major decline in profits after it books write-downs linked to its acquisition of Bear Stearns. Meanwhile, Citigroup is projected to post a loss for the quarter.

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