Fitch Upgrades Short-Term Ratings of Lehman Bros Holdings & Subs.

CHICAGO -- Fitch Ratings upgrades the short-term debt ratings of Lehman Brothers Holdings Inc. (Lehman Brothers) and its subsidiaries. Total short-term debt of $2.6 billion was outstanding as of May 31, 2005. Fitch also upgrades the long-term debt ratings of trust preferred and preferred securities of which there is approximately $2.6 billion dollars of securities outstanding. Finally, Fitch revises the support ratings to '1' from '3' for Lehman Brothers Inc., Lehman Brothers Holdings plc, and Lehman Brothers Bank. All other ratings are affirmed by Fitch. The Rating Outlook remains Stable. A list of assigned ratings follows at the end.

Fitch's upgrade of the short-term debt of Lehman Brothers to 'F1+' from 'F1' is based on its funding strength and prudent liquidity management. Lehman's funding profile is conservative, emphasizing the use of longer dated and secured funding sources. Liquid investments are held at the broker dealer and at the parent, providing material coverage of short-term liabilities.

The upgrade of the preferred stock and trust preferred issues equalizes the ratings of these instruments with subordinated debt. Fitch believes that the probability of default and recovery prospects of these issues possesses very similar characteristics, so that notching between these ratings is unnecessary.

Finally, the support ratings of Lehman Brothers Inc., Lehman Brothers Holdings plc, and Lehman Brothers Bank are upgraded based on Fitch's assessment of Lehman Brothers' willingness and ability to support these institutions. Ratings of these institutions are based on the integrated risk management and operations of the consolidated firm.

The Rating Outlook is Stable. Lehman's long-term credit rating was upgraded in July 2001, incorporating a strengthened funding base, improved revenue diversification, and profitability. Improvement in Lehman's long-term ratings may be based upon further earnings diversification. Despite expansion of revenues from equity and investment banking, the last two years of strong fixed income markets play into Lehman's franchise strength. Revenue growth is reflected in numerous credit and interest rate products, although revenues may decline if volume in origination or investor appetite for subprime and Alt-A mortgage securitizations recedes. Fitch does not expect such a decline to have a negative ratings implications.

Fitch has upgraded the following ratings:

Lehman Brothers Holdings Inc.

-- Short-term debt to 'F1+' from 'F1';

-- Preferred stock to 'A' from 'A-';

-- Trust preferred securities to 'A' from 'A-'.

Lehman Brothers Inc.

-- Short-term debt to 'F1+' from 'F1'.

Lehman Brothers Holdings plc

-- Short-term debt to 'F1+' from 'F1'.

Lehman Brothers Bank, FSB 

-- Short-term deposits to 'F1+' from 'F1';

-- Short-term debt to 'F1+' from 'F1'.

Lehman Brother Capital Trust III through VI

-- Trust preferred to 'A' from 'A-'.

Fitch has also upgraded the following support ratings:

Lehman Brothers Inc.

-- Support to '1' from '3'.

Lehman Brothers Holdings plc

-- Support to '1' from '3'.

In addition, Fitch has affirmed the following:

Lehman Brothers Holdings Inc.

-- Long-term senior at 'A+';

-- Long-term subordinated at 'A';

-- Individual at 'B';

-- Support at '5'.

Lehman Brothers Inc.

-- Long-term senior 'A+';

-- Long-term subordinated 'A';

-- Individual 'B'.

Lehman Brothers Holdings plc.

-- Long-term senior at 'A+';

-- Long-term subordinated at 'A';

-- Individual at 'B'.

Lehman Brothers Bank, FSB

-- Long-term deposits at 'A+';

-- Individual at 'B';

-- Support at '1'.

The Outlook is Stable for all ratings.

Fitch has withdrawn the following trust preferred issues as they have been retired.

Lehman Brothers Holdings Capital Trust I

Lehman Capital Trust II

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.