World markets hang on attempt to keep Lehman alive

Australia's benchmark S&P/ASX 200 Index fell 1.5% yesterday, following in the footsteps of Wall Street, which sank heavily on reports that Lehman Brothers was having trouble raising capital.

There were reports that the Korea Development Bank had walked away from negotiations with Lehman Brothers, and that although the investment bank had sought buyers for its prized investment management division, no deal had been forthcoming.

Investor optimism created by the US Government's bail-out of mortgage finance companies Freddie Mac and Fannie Mae was eliminated, and the Australian market returned to where it sat at the start of the week.

Lehman Brothers responded by bringing forward the release of its third-quarter results - as it did for its second-quarter results announcement in June. It was due to report preliminary numbers overnight, announcing "key strategic initiatives" in its struggle for survival.

The investment bank is the fourth biggest in the US and employs more than 100 people in Australia, offering capital markets and investment banking services.

Yesterday, the only comment from its chief administration officer for Australia, Sean Moore, was: "Lehman Brothers remains committed to its Australian operations, a critical component of the global business."

The investment bank has been under pressure since the collapse of Bear Stearns in March. Both banks were involved in mortgage-related businesses that were severely affected by problems in the US subprime mortgage market.

Yesterday rumours of an impending bail-out - like the one conceived for Bear Stearns by JPMorgan and the US Federal Reserve - propped up the Australian dollar.

It remained near US81 after sinking to a near 13-month low of US79.83, and gained against the yen.

Australian financial stocks withstood pressure on the market, with the S&P/ASX 200 financials index actually rising slightly.

QBE Insurance was up 2.3% and several major property trusts were the best performers. Among the banks, ANZ, Westpac and St George rose while Commonwealth Bank and National Australia Bank declined.

On Tuesday night, Lehman shares plunged $US6.36 to $US7.79.

LINK

? For Lehman Brother's third-quarter results go to www.lehman.com

BUSINESSDAY 2

? Investment bank pays price for late Australian push