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Stock Ideas Investors Daily Edge Stocks of Lehman (LEH) News This Week
Stock Ideas Investors Daily Edge Stocks of Lehman (LEH) News This Week 
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| What happened (and what is still happening) is simply leverage in reverse, or what people used to call a "run on the bank." But... I think a great more detail would be helpful for you to understand. Please excuse the intricacies: None of this stuff is very easy to understand the first time you think about it. I'll try to avoid using any jargon… | |
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| Stocks of Lehman (LEH) News This Week |
| Thursday, 03 April 2008 | ||||||||
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From Dow Jones Newswire on Tuesday: “Shares of Lehman (LEH) added 12% after the company announced plans to offer $4 billion in convertible preferred shares.” Analysts are crowing happily at this news. Let me see if I get this right. A week ago, Lehman was running around reassuring everyone it had enough cash to stay in business. Not exactly high cotton. Investors are worried about a bank run, and insiders think it might be too small to qualify for a Fed bailout should it fail. On top of this, claims that nasty short-sellers are spreading false rumors are making rounds—the company denies the rumors, but they persist, and the company has not showed anything strong enough to stop them cold. This sale of preferred stock was supposed to raise capital to put the rumors to rest and show how strong the company is. But why does it need this new massive new capital transfusion this very moment, and at such high cost, if it really doesn’t have a money shortage, as it claims? The company has cut employees by almost 20% already—which hardly signals growth going the right way, does it? It got into trouble with debt, too. It just wrote down $1.8 billion in bad mortgage assets in its recent quarter. If it does that again, everything it raised in the convertible sale will be eaten up by the write-offs. The preferreds carry a 7.25% yield, which will cost the company an extra $290 million a year to pay. When converted to regular shares, they stand to dilute earnings per share by about 15%. All I can think is that analysts who stand too close to Lehman’s shadow on Wall Street need to step back for a bit of light. P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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