Treasuries Rally and Stocks Decline as Lehman Shares Tumble

Shares of Lehman Brothers are in free fall after talks between the investment bank and a Korean state-controlled bank broke off.

Shares of the company, which is the fourth-largest U.S. investment bank, are trading at their lowest since 1998. At 11:06 a.m. EDT, Lehman shares were down $4.71, or 32.6%, to $9.62. Lehman traded as low as $8 per share.

The decline came after reports that the talks between Lehman and the Korean Development Bank have ended. The embattled investment bank is in need of capital after posting large losses related to declines in the U.S. housing market and the subsequent credit crunch.

U.S. two-year yields are down 6.5 bps to 2.24% after trading as high as 3.35% earlier in the session. Five-year yields are down 6.4 bps to 2.91%, 10-year yields are down 6.0 bps to 3.61% and 30-year yields are down 5.5 bps to 4.21%.

Toronto's S&P/TSX composite index is down 290 points to 12345, the Dow Jones industrial average is down 117 points to 11394, the S&P 500 is down 20 points to 1247 and the Nasdaq is down 23 points to 2247.

On the weekend, Lehman announced a management shake up, something analysts said is an indication the company might not be close to completing a capital raising move.

The company will report third-quarter results on Sept. 18. The Bloomberg EPS consensus estimate is for a $3.21 loss per share. The company has said it expects to lose $7.32 per share for the full fiscal year before returning to profitability in fiscal 2009.

Lehman said it will discuss the outcome of talks with potential investors when it reports quarterly results.

All data taken at 11:06 a.m. EDT.

By Adam Button and edited by Sarah Sussman
©CEP News Ltd. 2008