Lehman Brothers reduces high-yield contingent loan commitments by $6.1 billion in first quarter

By Jennifer Lanning Drey

Portland, Ore., March 18 - Lehman Brothers Holdings Inc. made "tremendous progress" in reducing its leveraged loan exposure during the first quarter, ending the period with high-yield contingent commitments of $3.7 billion, Erin Callan, chief financial officer of Lehman, said Tuesday during the company's first-quarter earnings conference call.

The number was down from $9.8 billion at year-end 2007, down from $27 billion at the end of the third quarter of 2007 and down from $44 billion at the end of the second quarter of 2007.

Callan also reported that Lehman had $2.2 billion of unfunded commitments for closed deals and $11.9 billion of funded loans on its books at the Feb. 29 first-quarter end.

On the investment-grade side, the firm had $7.2 billion of contingent commitments for deals not yet closed, $800 million of unfunded commitments for closed deals and $2.9 billion of funded deals.

The firm continues to move loans "at the right prices," Callan said.

Lehman reported first-quarter net income of $489 million, down 57% from net income of $1.15 billion for the first quarter of 2007.

During the 2008 period, equity and credit markets continued to decline as the market was challenged by declining liquidity, difficulty obtaining leverage, investor fears regarding a recession, a weak dollar and high commodity prices.

Lehman's fixed-income capital markets segment reported an 88% decline in revenues as compared to the first quarter of 2007, with strong performances in liquid products such as high-grade corporate debt, foreign exchange and interest rate products offset, in part, by the continued deterioration in the credit markets.

Equity capital markets grew net revenues by 6% over the first quarter of 2007, with the increase being driven by continued growth in prime brokerage and strong activity in execution services.

Lehman's investment banking segment reported a 2% increase in net revenues over the prior-year first quarter, which was driven in part by strong merger and acquisition advisory revenues and higher equity origination revenues and was partially offset by lower revenues in debt origination.

No near-term stability seen

Looking forward into 2008, Callan called the Federal Reserve's recently announced emergency measures to help market liquidity "a great addition to the equation" but later in the call said the firm doesn't "expect to migrate to any great stability in the near term."

"Despite the positive developments of the Fed action in the past few days, we still don't anticipate the challenging market conditions abating anytime soon and we have planned our business accordingly," Callan said.

The firm expects U.S. growth to be minimal in both 2008 and 2009, with the effects of a U.S. economic slowdown spilling over into other markets.

Lehman is projecting GDP growth of 2.3% in 2008.

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