Lehman: The Bottom Is In

| About: Lehman Brothers (LEH)

I think Lehman (LEH) is a buy around current levels with several points worth of upside.

- WSJ reports the U.S. Securities and Exchange Commission [SEC] has sent subpoenas to more than 50 hedge-fund advisers as it investigates whether individuals spread false rumors to manipulate shares in two Wall Street firms. The subpoenas, sent as recently as Monday, are seeking trading and communications data related to short-selling and options trading in Bear Stearns (NYSE:BSC) or Lehman Brothers Holdings Inc. (LEH), the person told the paper. Rumors have been blamed for the collapse of investment bank Bear Stearns and for the 40 percent slide in Lehman shares this month.

The subpoenas relate to trading in securities of the brokers, as well as correspondence between the hedge funds and other parties, people familiar with the inquiry told the paper.

- NY Post reports Lehman Brothers' CEO Dick Fuld is seriously mulling a way to take itself private and out of the public eye. According to sources, talks internally centering on privatizing Lehman have gotten very serious consideration after a blistering onslaught of rumors and questions about the firm's solvency have caused shares to shed more than 79% this year. Details on how such a take-private maneuver might work are not clear. However, the rationale is that the free-fall in Lehman's shares is attracting hungry vultures hoping to snap up the ailing fixed-income shop on the cheap. "The idea is why sell to someone else at so cheap a price when they could buy themselves," noted one source.

Notablecalls: The actions taken by the SEC create a situation where the short sellers are forced out of the game. If they stick around pressing their bets and talking about it loudly (a.k.a spreading rumors), they risk getting caught. The good people at the SEC will show little mercy. So they are likely to fold and step aside. That takes the pressure off the stock.

Plus now we have Dick Fuld possibly looking to take Lehman private, representing a kind of a floor for the stock here around $13 per share.

Morgan Stanley was out positive on LEH yesterday reiterating their Overweight rating and $31 target calling it a high-beta play on possible recovery.

Looks to me like a good risk/reward trade.