Fed, SEC Not Ordering Lehman to Raise Capital, Official Says

Lehman Brothers Holdings Inc., whose stock has lost more than half its value this year, isn't under pressure from the Federal Reserve and Securities and Exchange Commission to boost capital, a government official said.

Regulators are leaving it up to Lehman for now to decide whether it needs to raise money, said the official, who declined to be identified because discussions between regulators and the firm are private. Lehman is unlikely to face the type of run that drove Bear Stearns Cos. near bankruptcy because the Fed is now lending money directly to brokerages, the person said.

Lehman, led by Chief Executive Officer Richard Fuld, has raised $8 billion since February to offset losses from a global credit contraction that forced Bear Stearns to sell itself to JPMorgan Chase & Co. Lehman this month may post its first quarterly loss as a public company, analysts predict, stoking investor concern that it will have to seek more capital.

``You may have to raise equity just as a calming measure, but there's no tangible need to raise equity at this point,'' said David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller. ``The company's quarter will come out marginally negative, but not of the magnitude that would create a big capital hit.''

The SEC and Fed are in contact with Lehman executives on a daily basis and the central bank is participating in on-site examinations of the New York-based firm's capital and liquidity, the official said.

David Skidmore, a spokesman for the Fed Board of Governors in Washington, declined to comment, as did John Nester, his counterpart at the SEC. Lehman spokesman Kerrie Cohen declined to comment.

`Regularly Talking'

``We're regularly talking to market participants, to get a sense of how things are going,'' Treasury Assistant Secretary David Nason said today in an interview with Bloomberg Television when asked about Lehman. He declined to comment on any specific firm.

The Fed in March started a new program providing direct loans to investment banks at the same rate it charges commercial banks. The so-called Primary Dealer Credit Facility provides overnight loans in exchange for AAA rated collateral that includes debt backed by mortgages. It was aimed at preventing a deeper credit crisis amid the near-collapse of Bear Stearns.

``Opening the window to investment banks puts a floor on market functioning,'' said Vincent Reinhart, a former Fed monetary-affairs division chief. ``The optimist hopes that dealers will use this time to cope with their balance-sheet problems. Firms can admit losses, sell their underwater assets, and raise more capital.''

`Open Question'

Reinhart, who's now at the American Enterprise Institute in Washington, said ``the open question'' is whether Lehman has been ``faster or slower to deal with its balance-sheet problems.''

Fed Vice Chairman Donald Kohn said last week that policy makers should consider whether to make the primary dealer lending program a permanent tool. Fed and Treasury officials have said tighter regulation of investment banks will be needed in return for the ability of those firms to borrow from the central bank.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson have encouraged U.S. banks and brokerages, without specifying names, to raise capital to minimize the effects of losses and writedowns on the economy.