SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): October 5, 1998
LEHMAN BROTHERS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-9466 13-3216325
(Commission File Number) (IRS Employer Identification No.)
3 World Financial Center
New York, New York 10285
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(212) 526-7000
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Item 5. Other Events
On October 5, 1998 Lehman Brothers Holdings Inc. (the "Registrant")
issued a press release, a copy of which is attached as an exhibit.
Item 7. Financial Statements and Exhibits
(c) Exhibit
The following Exhibit is filed as part of this Report.
99.1 Press Release
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEHMAN BROTHERS HOLDINGS INC.
By: /s/ John L. Cecil
----------------------
John L. Cecil
Chief Financial Officer
Date: October 5, 1998
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EXHIBIT INDEX
Exhibit No. Exhibit
Exhibit 99.1 Press Release
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Exhibit 99.1
[GRAPHIC OMITTED]
For Immediate Release Media Contact: William J. Ahearn
(212) 526-4379
LEHMAN BROTHERS PROVIDES
ADDITIONAL INFORMATION ON HEDGE FUND,
EMERGING MARKET AND MORTGAGE EXPOSURES
New York, October 5, 1998 -- In light of recent concerns raised about the
financial services industry generally, Lehman Brothers believes it is important
to provide information to the market that accurately describes the Firm and its
businesses. With that in mind, the Firm today released details regarding its
exposures to hedge funds, to emerging markets, and in the Firm's commercial
mortgage business.
Lehman primarily engages in customer-driven businesses and adheres to prudent
risk management practices. Despite extremely volatile market conditions over the
past few months, Lehman's risk exposures have remained well within the
parameters established by the Firm. Lehman Brothers' credit exposure is
diversified across approximately 3,200 different sovereign, government agency
and corporate counterparties. Ninety-one percent of the Firm's total net credit
exposure arises from investment grade counterparties and ninety-five percent of
counterparties are in G-10 countries.
Lehman's commitment to sound risk management, in combination with its client
driven strategy, has proven successful. The Firm's earnings for the year to date
exceeded earnings for any prior full year in the Firm's 148-year history. For
the first nine months of fiscal 1998, the Firm's net revenues were $3.4 billion
and net income was $662 million, an increase of $600 million and $200 million,
respectively, from the equivalent period last year. For the past three quarters,
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average return on equity, excluding the American Express participating preferred
dividend, was 20%. In the most recent fiscal quarter ending August 31, net
income was $151 million. Lehman supports its global businesses with a balance
sheet of $134 billion, excluding the Firm's matched book, and long-term capital
of $34 billion, including equity capital of $5.3 billion.
Hedge Fund Exposures
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Lehman's exposure to hedge funds arises when the Firm has mark-to-market gains
on transactions with these counterparties. This exposure is offset by the value
of collateral held against those gains. The Firm is currently
over-collateralized across its overall business with hedge funds. The Firm holds
$583 million of collateral, primarily in the form of cash, U.S. Treasuries and
U.S. agency securities, against total credit exposure to active hedge fund
counterparties of $447 million on a mark-to-market basis across all products.
Within its overall portfolio, the Firm may have small uncollateralized exposure
to a subset of hedge fund counterparties at any given time. This results
primarily from contractual provisions that permit limited uncollateralized
exposures to reduce the frequency of small transfers of funds and facilitate
operational efficiency. Currently, the Firm's total uncollateralized exposure to
hedge funds is $72 million across 54 counterparties. The Firm's largest single
active hedge fund credit exposure is $10 million.
The Firm's gross mark-to-market exposure to Long-Term Capital is $32 million
against collateral of $41 million in the form of U.S. Treasuries.
The Firm stressed that it manages these fund relationships closely and
mark-to-market exposures and collateral are reviewed on a daily basis.
Emerging Market Exposures
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Lehman carries positions in emerging market securities primarily to meet the
needs of its customers and clients. The Firm's total net emerging markets
positions on a mark-to-market basis amount to $305 million, inclusive of hedges.
For proprietary reasons, Lehman does not disclose inventory positions in
individual countries; however, Lehman did indicate that of this total, $49
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million arises from Asian countries, $99 million from European emerging markets
and $157 million from Latin America.
The Firm also conducts business with counterparties in emerging markets
countries. Across its entire client base and all products, the Firm holds
collateral of $266 million, primarily in the form of cash, U.S. Treasuries and
U.S. agency securities, against its mark-to-market exposure to emerging market
counterparties of $337 million. Within this overall portfolio, the Firm has a
net credit exposure to 66 counterparties, totaling $164 million. This exposure
is spread across 34 different countries. The Firm's largest net credit exposure
to any one counterparty is $25 million. In any one country, the Firm's largest
total exposure to all counterparties combined is $33 million.
All exposures are monitored actively and are consistent with the Firm's risk
limits.
Commercial Mortgage Business
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Lehman Brothers has one of the premier commercial mortgage-backed securities
(CMBS) businesses. In this business, the Firm buys commercial mortgages,
converts them to securities, and then sells those securities. The Firm's
operating practices have served to mitigate a number of the risks in this
business.
First, the Firm securitizes its commercial mortgage inventory frequently. This
shortens holding periods and increases the turnover rate of the Firm's mortgage
inventory. In 1998 alone, Lehman thus far has completed four major
securitizations which included $6.5 billion from its inventory, with the most
recent completed in August amounting to $2.25 billion. The Firm plans to
complete two additional transactions this year, and is currently in the
marketing phase for a floating rate (LIBOR) CMBS transaction totaling $3.8
billion, which has already been reviewed preliminarily by the ratings agencies
Moody's and Fitch.
Second, the bulk of the Firm's origination has been floating rate mortgage
product. Of the Firm's current commercial mortgage inventory, approximately 85
percent is floating rate, or has been swapped into floating rates. These loans
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have held their value much better in the current environment than fixed rate
loans or hybrid products. Lastly, the Firm applies conservative accounting and
valuation methodologies in its commercial mortgage business. Taken together,
these practices have enabled Lehman Brothers to manage its risk effectively in
the current market environment.
* * *
Richard S Fuld, Jr., Chairman and CEO of Lehman Brothers, stated, "We are proud
of our ability to manage risk prudently and of our discipline and ability to
adapt quickly to changing market environments. We hope that the information we
have provided today will demonstrate that and will be helpful to our clients,
customers and investors."
Lehman Brothers is a global investment bank with leadership positions in
corporate finance, advisory services, municipal finance and fixed income and
equity sales, trading and research. Lehman Brothers serves the financial needs
of corporate, government and institutional clients, and high-net-worth
individuals through offices in major financial centers worldwide.
