Einhorn vs. Lehman: Lehman Will Lose

Why can David Einhorn affect Lehman's (LEH) stock price? The answer is simple really. It comes down to believe-ability. Einhorn has it, bankers do not.

Investors sitting and watching for the last few years have witnessed the savaging Bill Ackman took from bond insurers MBIA (MBI) and Ambac (ABK) as well as threats from NYC Insurance Commissioner Eric Dinallo. For years they asserted he was "off base" and accused him of spreading rumors, innuendos and outright lies. What happened? Everything Ackman said came to fruition yet he was still blamed for the world's reaction to the prices of both company's stocks. As though the actual crippling losses at both company's has nothing to do with it.

Now it is Einhorn's turn. Having been short Lehman since last summer, Einhorn is now being blamed for the current rush to sell the stock.

Here is the thing. Einhorn has been saying the same thing for a year now but the stock only cratered since February. Why? The things Einhorn has been saying are now coming true. Lehman has massive CDO exposure, has not written it down properly, has needed more money and has more loses in the works.

Lehman, for its own part is fanning the flames by denying they need money and then going out and raising more of it. Lehman's advantageous disclosure on page 56 of an SEC filing that seemed to contradict public statements also led investors to doubt management and gave Einhorn yet more ammunition.

Lehman’s management has spoken about Mr. Einhorn, but they have declined to comment publicly beyond a statement that says Mr. Einhorn “cherry picks” and misconstrues information. Isn't good enough. Einhorn is being very specific in his critique of the company, unless your refutation of him is the same, you lose. Basically Lehman is saying, "trust us, he is wrong, by the way, got $4 billion you can spare?"

Crying about short sellers is a loser's game. Why? If your results and disclosures do not give them anything to stump, they go away or get crushed. When you get into a "tit for tat" with them, they win unless you are 100% accurate and disclose everything not just in a filing, but in public statements. Unless you do both all the time, and Lehman has not, you lose.

PS. The NY Times described Einhorn as a "rabble-rousing hedge fund manager". Having heard him speak, nothing can be further from the truth. Icahn? Yes, Einhorn? Not by a mile. Einhorn reminds one of a librarian.

Disclosure: None

Comments

[fxtrader07:]

Einhorn and his freinds and former compagnons control a sizeable chunk of financial media. that's whyx they are all over tv and print with their views. same with ackman and mbi/abk.
make no mistake. if it were that simple, that sound reasoning alone was sufficient to get heard or succeed, many incredible smart analysts and observers would be on air all day and make vast fortunes - but they are not.
if it were not for his media network and his friends in all sorts of places, einhorn would not receive the publicity he gets.
that said, it has been since long the well articulated judgement of many smart observers that the IBs, namely Leh and passed-away BS, but JPM as well, are way too leveraged, follow a flawed business model, and are due for a day of reckoning.
their arguments were as sound a year ago as are einhorn#s now.
so rather than asking who will win, the intelligent question ight bne: why do get certain people NOW that kind of publicity for talking their books (and hence influencing their own fortunes)?

2008 Jun 05 07:04 AM

[sharks:]

finkle is einhorn...einhorn is finkle....einhorn is a man!!!!!!!!!!

2008 Jun 05 07:28 AM

[FIG trader_:]

Perhaps you should clarify exactly what price target Einhorn has put on LEH and the specific $ writedowns in assets/earnings numbers he has in mind. Is 50% of bv his target or is 10% as in bsc takeout price?

2008 Jun 05 07:36 AM

[blocks:]

boston instiutions buying lehman fixed income paper with both hands
einhorn is going to get whipsawed

2008 Jun 05 08:41 AM

[zenalgorithm:]

The one thing that would save Lehman is if property values started going up again.....

Bear raid: which big bank will the FED give Lehman to?

2008 Jun 05 09:23 AM

[atauber:]

einhorn is making one BIG MISTAKE the FED will help LEH stay curent on their obligaitions and will not force them to be sold for ten percent. they did it only with BSC because of REVENGE that BSC didnt help the FED in 1998 with the LTCM fiasco

2008 Jun 05 09:39 AM

[old fogey:]

About Einhorn, I know nothing. The Bankers I talked to say the Fed will bail themselves (bankers) out.
I asked what if all the bankers show up at once .... they answered we are hoping, hoping, HOPING it does not happen.
Derivative exposure was pointed out (at first denied)...I asked why should I put my money here .... they had no answer.

2008 Jun 05 10:31 AM

[CrossProfit_:]

atauber,

'Off the record', you are 100% correct.

Disclosure: Personal opinion of a CrossProfit analyst and does not represent the opinion of crossprofit.com.

2008 Jun 05 03:22 PM

[muley101:]

Gotta love it. We day traders will feast on LEH for the next 2 weeks over this back and forth between Einhorn and LEH..

2008 Jun 05 09:22 PM

[John Kerans:]

Re: candor and media relations and Lehman Brothers ..

About 20 years ago, while in charge of media relations for clients of a big ad agency, I got acquainted with Herb Schmertz, boss of PR for Mobil Oil.

Here was his advice to the public companies of the world:

"To be believed in the good times, you must be candid in the bad."

Some of the smartest CEOs in the world believe they can stonewall reporters and get away with it.

That stonewall approach tends to make a bad situation worse.

For more on Schmertz, you can still find his book: "Goodbye to the Low Profile."

John Kerans
Lecturer in Advertising
Fontbonne University
St. Louis, USA

2008 Jun 06 12:28 AM