| NEW YORK
NEW YORK Lehman Brothers Holdings Inc LEH.N
Chief Executive Dick Fuld on Tuesday became the third
investment bank head to strike an optimistic note about
financial markets this month, saying "the worst is behind us."
Speaking at the Wall Street investment bank's annual
meeting, Fuld said the U.S. economy will take "a number of
quarters to regain its previous strength," but that client
trading activity and investor sentiment offer reasons to be
Fuld's remarks followed similar statements by Goldman Sachs
Group Inc (GS.N) Chief Executive Lloyd Blankfein and Morgan
Stanley CEO John Mack last week in which both said global
markets are showing signs of working through their
U.S. equity investors seem to be listening -- the Standard
& Poor's 500 index has risen more than 4 percent since
Financial markets typically rebound ahead of actual
economic recoveries, but despite their optimism, investment
bank chief executives have in recent weeks been reluctant to
call a market bottom.
"Maybe we're at the end of the third quarter, beginning of
the fourth quarter," Blankfein said last week. "If you watch
sports, sometimes there's a lot of timeouts in the fourth
quarter. It takes longer to play than any of the other
quarters, and sometimes it ends in a tie and goes into
Mack, also using a sports analogy, said the subprime
mortgage crisis was in the "bottom of the eighth inning or top
of the ninth."
Investment banks still face difficulties. Regulators will
likely force dealers to boost their capital levels and reduce
their assets relative to their borrowings, a big theme last
weekend at the G7 meeting in Washington, D.C.
Lehman is planning to both raise equity and reduce assets
as it looks to deleverage, Fuld said on Tuesday. The investment
bank sold $4 billion of convertible preferred shares at the
beginning of the month, proving it can raise capital.
That was crucial for Lehman, which some investors feared
could face a bank run similar to the one that forced Bear
Stearns Cos BSC.N to sell itself to JPMorgan Chase & Co
(JPM.N) at a rock-bottom price.
Many investors are less concerned about investment banks'
stability now, though, after the Federal Reserve said the banks
can borrow directly from the central bank.
Lehman has accessed overnight Fed financing several times,
and plans to do so again on Wednesday. It does not have any
borrowings outstanding as of Tuesday, Fuld said.
Speaking after the annual meeting, Chief Financial Officer
Erin Callan said the investment bank has found that securities
that can be pledged to the Federal Reserve can also be borrowed
against in short-term markets known as repo markets.
Lehman has been using various securities as collateral for
borrowing at the Fed, most notably loans packaged into bonds
last week. When the Fed accepts the assets, Lehman then knows
it can borrow against the assets in repo markets, Callan said.
Last week, Lehman packaged $2.8 billion of unsold loans
into bonds, about $2.26 billion of which were investment-grade.
The bank then used some of the investment-grade bonds as
collateral in borrowing from the Fed.
Separately, Lehman Brothers said shareholders approved the
company's directors for a year term. All Lehman directors are
(Additional reporting by Joseph A. Giannone; Editing by
Brian Moss and Jeffrey Benkoe)