Why I'm Leaving Lehman

As I wrote earlier in response to one subscriber's question, I closed my position in Lehman Brothers (LEH) because, despite the recent optimism in the markets, I remain bearish on the financials, especially on the investment banks. Market action in the few days since this trade seems to be trying to prove me wrong, as the stock went up almost $2 from my sales price, but I still think that it has more downside in store.

In retrospect, I should have gotten out of Lehman much earlier. (Of course, that assessment comes with the benefit of 20-20 hindsight!) I was tempted to do so on several occasions, but kept the stock in my portfolio, as I have generally held a higher opinion of Lehman Brothers and Goldman Sachs (GS) than of the rest of the investment banks and was encouraged by its relatively better performance during the early stages of the subprime crisis. In part, I also held on to the former as something of a "hedge" for my bearish positions on Merrill and Citigroup. I should have realized that none of the big banks would escape unscathed.

Finally, I decided to liquidate my Lehman position since I did not think it would provide a good return on investment for the intermediate term. The price spike last week, which came on the heels of Lehman's funding news, provided me with a convenient exit point. However, I still retain a high opinion of the firm and its business strategy and would not be surprised if I get back into it in the future.

Disclosure: Author does not hold shares in above-mentioned companies.

Comments

[Lockstep In...:]

???

Say something more significant, like what has changed about their exposure that has motivated you to leave the position.

I am still a bear on Lehman because their high leveraged loan exposure compared to shareholder equity. I believe they have significant CDS exposure too. None of these things will be solved at the discount window or TAF. So I remain in my position and wait patiently.

2008 Apr 16 08:01 PM

[gonzo:]

I also wonder what made you sell out now when you should have done so long ago. What were you thinking when LEH hit the intraday low of $20? It was at the brink of collapse exactly like Bear and the stock is still underperforming its peers. So why exactly is LEH any better than the rest? I would say if anything it is more vulnerable but selling out NOW is definitely an afterthought just like this article.

2008 Apr 16 09:58 PM

[Stat:]

Wonderful, you got out and you may get back in.

2008 Apr 17 07:27 AM

[phdinsuntan...:]

$46.88, I shorted LEH price today: deferred losses will create an earnings headwing going forward. They would need between 50 - 90 bn. to deleverage...

2008 Apr 18 02:03 PM

[Stat:]

I shorted at 39.30 ouch for the moment

2008 Apr 21 06:43 PM