Regarding Lehman: a Common Sense Approach Asks a Lot of Questions

To begin with, you have no business buying stock if you need to hit the capital markets for any reason. The SEC was willing to look into short sellers conspiring to drive Lehman’s stock price down - well, I insist they look into Lehman for conspiring to drive stock prices up! They stated that they only bought small amounts, but since they failed to mention what those amounts were, it is called into question.

Lehman states that it isn’t facing a liquidity crisis (ala Bear Stearn’s same “Short me, please” speech 3 months ago), yet it is going back to the liquidity well for the fourth time in as many months. I hear alcoholics really don’t believe they have a drinking problem, either.

Whether they have a liquidity problem or not or are backstopped by the Fed or not, one thing is for sure - They definitely have solvency problem, and that is something that can only be solved by strong earnings growth (not happening here) and strong market valuations (uh, huh). High leverage, depreciating assets bought at the top of a bubble, and the burning need to de-lever in a rapidly-falling market will kill the best of us.

Snippets from CNBC:

Lehman has traditionally released its earnings for the second quarter during the week of June 16, which is in two weeks. But people close to the firm say executives are considering whether to move those earnings up, possibly to next week.

The earnings announcement, these people say, would likely come in conjunction with a move by the firm to find new capital….

CNBC has learned that one new capital-raising option now being discussed is something similar to what’s known as a “rights offering,” whereby Lehman would approach existing shareholders and get them to buy stock in the company, possibly at a discounted price….

An internal Lehman memo obtained by CNBC shows that Lehman has reduced its leverage up to 25 percent over the last quarter. The memo also said that Lehman was buying back only small amounts of stock as part of a regular buyback program. Newspaper reports stated that the recent spike in shares of Lehman was the result of a recent massive buyback effort….

Lehman has said that it isn’t suffering a liquidity crisis. That said, the firm still faces an uncertain future. It’s likely to announce a second-quarter loss. The reduction in leverage and risk-taking is likely to lead to lower profit margins for the firm….

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