September 10, 2008 (Wednesday): From Bad to Worse at Lehman; Worries for WaMu

The situation is growing even more critical for storied investment bank Lehman Brothers. The bank says it had a third-quarter loss of $3.9 billion. That marks the biggest loss in Lehman’s 158-year history. Trying to calm investors, Lehman says it will sell off assets and slash its dividend—all the way to 5 cents from 68 cents. But after a morning bump, Lehman’s shares wind up falling again, closing down 7% to $7.25. (For more on this news, click here and here.)

And the subprime hits just keep coming. While Lehman Brothers struggles, there’s also growing anxiety about Washington Mutual. With about $180 billion in mortgage-related loans, the bank could face billions in losses by some estimates. “If this goes on until the end of the year, the bank is either going to have to be sold or recapitalized by the government. Those are the only choices,” Christopher Whalen, a managing partner at Institutional Risk Analytics, tells the New York Times. WaMu shares fell below $3 for the first time since 1991. (For more on this news, click here.)

Raffaello Follieri, the Italian businessman who dated actress Anne Hathaway, pleads guilty to 14 counts of wire fraud, money laundering and conspiracy. Follieri used his wide-ranging contacts to lure investors to real estate ventures. Under the terms of the plea, Follieri must surrender assets including $2.4 million—and 12 watches. (For more on this news, click here.)