As the government proceeds with its bailout of ailing mortgage giants Fannie Mae and Freddie Mac, Wall Street is abuzz about the fate of another financial heavyweight: Lehman Brothers.
Brokerage giant Lehman Brothers, which was badly hit by the country's mortgage meltdown, will report its third-quarter earnings on Sept. 18. Questions abound on how Lehman will raise capital and cover its expected losses.
By noon on Tuesday, shares of the country's fourth largest brokerage firm were down more than 30 percent as investors worried about whether Lehman would be able to cover the losses it continues to sustain from its mortgage holdings.
"There's a strong suspicion in the marketplace that a lot of their assets, which are related to residential and commercial mortgages, are not worth what they're being carried on the balance sheet for," said Lawrence J. White, an economics professor at New York University's Stern School of Business. "One of these days, Lehman is going to have to recognize that."
White said that if Lehman doesn't resolve its asset problems, the government might eventually step in to shore up the bank like it did Bear Stearns. In March, the failing investment bank was purchased by JP Morgan in a $240 million deal backed by the federal government.
