Lehman Denies Subprime Exposure

Lehman Brothers denied rumors on Wednesday that it was about to announce losses connected to the subprime mortgage market, but its shares fell along with its sector. The market was already skittish following the revelation Wednesday that two Bear Stearns hedge funds with wide exposure to subprime loans have essentially been wiped out. Adding to investor apprehensions, Punk Ziegel & Co. downgraded Bear Stearns, Merrill Lynch, Morgan Stanley and other firms on concerns that they might not be able to make payments due on debt. Investors honed in on Lehman because of a perception that it has a greater exposure to the mortgage market than its competitors, a premise the firm denies. "The rumors regarding subprime exposure are totally unfounded," said Lehman Brothers spokeswoman Kerrie Cohen. Despite the denial, investors clamored to buy puts on the stock: 50,113 Lehman puts versus 21,118 calls were traded by early afternoon Wednesday, well beyond Lehman's normal options volume of 28,682 contracts. The shares fell over 3% before rebounding slightly to close down 1.93% at $71.65.

Sources: TheStreet.com, Reuters
Commentary: Lehman Strategist Says Economy Won't be Derailed by Subprime Crisis • Lehman Brothers: A Risk-Averse Goldman Sachs - Barron's • I-Banks At Risk From Hedge Fund Over-Exposure?
Stocks/ETFs to watch: Lehman Brothers Holdings Inc. (LEH). Competitors: Goldman Sachs Group Inc. (GS), Merrill Lynch & Co. Inc. (MER), Morgan Stanley (MS). ETFs: KBW Capital Markets ETF (KCE), iShares Dow Jones US Broker-Dealers (IAI)
Earnings call transcripts: F2Q07

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