Sumitomo bid rumours surround Lehman Bros

  • @dusborne
The future of Lehman Brothers, the American investment bank with a significant presence in London, is again under the microscope amid a swirl of rumours that it could be the subject of a buyout bid by Japan's Sumitomo Bank.

Lehman, which does not have a large securities retail network following its separation from Shearson in 1990, is one among several US financial houses being viewed as likely players in a new wave of consolidation on Wall Street in the wake of the Morgan Stanley-Dean Witter merger of last week.

Sources inside the bank yesterday said they had no knowledge of an approach by Sumitomo. "I have been hearing a lot about Hong Kong Shanghai and the really hot one for a while was Bankers Trust," one insider remarked. "If it were Sumitomo, I would be really surprised."

There is a consensus that Lehman, which has seen its stock value double since it was spun off by American Express in 1992, is an attractive target for firms, including banks, seeking new partners. Banks have had the path cleared toward the purchase of investment firms by the recent easing of the 1933 Glass-Steagall Act, which placed barriers between them and brokerages.

Other possible targets regularly cited include Bear Stearns, the Prudential Securities division of Prudential Insurance Co, Paine Webber and regional US firms like AG Edwards and Alex Brown of Baltimore.

If Lehman is anxious to remain independent, however, it could equally attempt to move first in an acquisition of its own. A search for a partner with a strong securities retail capability could lead it to Paine Webber.

Paine Webber shares were driven up last week by rumours that it, and not Dean Witter, would be the target of Morgan Stanley's appetite.

Expectations of further consolidations were fuelled by sharp rises in the shares of many Wall Street firms immediately after the Morgan Stanley- Dean Witter announcement.

However, Scott Pardee, a senior adviser with Yamiachi International, voiced doubts yesterday that foreign banks, including Sumitomo, could easily overcome regulatory concerns in Washington.

"I think this is going to be US banks looking at each other," he said. "Cross-border and cross-industry acquisitions could quickly run into questions with the regulators and I think it would be very difficult."

Ironically, the history of Lehman Brothers, and in particular its unhappy pairing with Shearson in the 1980s, offers one cautionary tale about the limits of coupling traditional investment banking services with a strong retail capacity. Shearson was meant to provide Lehman with a strong retail dimension, but the two firms never firmly melded.