[movermike] movermike: Lehman Shares Go Ooof!

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Posted by movermike:
Lehman Shares Go Ooof!
http://www.movermike.com/posts/1213376922.shtml


   Suppose I borrow some money from you to keep my business alive. You
   loan me $600,000 on the promise that I will repay you over a stated
   period of time. Then, suppose, that three days after the deal closes,
   I quit. Wouldn't you be pissed and wouldn't you have some real
   concerns over the safety of your loan. To make matters worse, suppose
   you were a co-owner in some way.

   Well, that's exactly what happened at Lehman Brothers (LEH), only it
   was $6 billion not $600,000!

     June 12 ([1]Bloomberg) -- Lehman Brothers Holdings Inc. replaced
     Chief Financial Officer Erin Callan and President Joseph Gregory
     three days after the firm raised $6 billion (in common stock and
     preferred shares) to help survive the collapse of the mortgage
     market and reported the first quarterly loss since the company went
     public in 1994.

   LEH stock closed on Friday the 6th at $32.29. On a busy Monday, June
   9th, the street was shocked that LEH would report its first quarterly
   loss, and that LEH would raise $6 Billion in stock and convertible
   preferred.

   The stock was offered at a 15% discount to book value, declared by
   management to be $33 after dilution. The offering took place at $28
   and was completed on the 12th. On the 12th, after the dust settled,
   the stock closed at $22.70. A stunning loss of at least $2.9 Billion
   since the offering and $5 Billion for the week. Now the architect of
   the balance sheet, CFO Erin Callan, another woman working at a high
   level, is gone.

   The WSJs [2]David Reilly and Peter Eavis write

     The massive dilution that has resulted from raising new capital
     will mute returns for years to come. At the same time, Lehman is
     cutting back on the use of borrowed money, which will act as a
     further drag on profitability. That makes it tough to see how
     Lehman can hope to achieve anytime soon the midteen returns on
     equity that Ms. Callan pledged earlier this year.

References

   1. http://www.bloomberg.com/apps/news?pid=20601087&sid=adGnnAo.JhvI&refer=home
   2. http://online.wsj.com/article/SB121332812679371025.html?mod=googlenews_wsj