Lehman Brothers to spin off $30b of real estate assets

US investment bank Lehman Brothers intends to spin off $25-30bn in commercial real estate assets in the first quarter of 2009. The plan is part of a 'strategic restructuring' at the financial group which predicted net losses of close to $4bn in the third quarter ending on 31 August. The news of the real estate divestment came as talks stalled with Korea Development Bank about becoming a strategic investor in Lehman Brothers.

'This is an extraordinary time for our industry, and one of the toughest periods in the firm's history,' said Lehman chairman and CEO Richard Fuld. 'The strategic initiatives we have announced today reflects our determination to fundamentally reposition Lehman Brothers by dramatically reducing balance sheet risk, reinforcing our focus on our client-facing businesses and returning to the firm's profitability.'

The bank will transfer the majority of its commercial real estate portfolio to a separate publicly-traded firm, Real Estate Investment Global, (REIG), which will be owned by the bank's shareholders. Lehman Brothers - the fourth largest bank in the US - added that it is engaged with Blackrock Financial Management to sell about $4bn of its UK residential mortgage portfolio and expects to complete the sale within the next few weeks.

The company took several steps during the last quarter to raise capital from its real estate portfolio in an attempt to survive the financial crisis. The company said it cut its residential mortgage exposure by 31% to $17.2 bn. The bank also reduced its commercial real estate exposure by 18% in Q3 from $39.8 bn to $32.6 bn. Additionally, the company is selling a majority stake in a subset of its Investment Management Division and said it will cut its dividend by 93%.

The company reported a preliminary let loss of about $3.9 bn for the third quarter. This compares to net losses of $2.8 bn for the second quarter of the year.