Lehman's Worth: Sinking Fast

Lehman is getting crushed today. It may not be long for this world. Bloomberg is reporting Lehman Shares Fall After Talks With Korean Bank End.

Lehman Brothers Holdings Inc. fell 35 percent in New York trading after talks about a capital infusion from Korea Development Bank ended. The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said.

Lehman, based in New York, has been seeking to raise capital and shed devalued real estate assets after $8.2 billion in writedowns and credit losses in the past year. Korean regulators told the development bank it would be "inappropriate" to pursue a Lehman acquisition.

Lehman CEO Richard Fuld and President Bart McDade are preparing to announce third-quarter financial results next week along with the outcome of their negotiations to sell assets and obtain cash infusions from outside investors.

The firm has been in talks Kohlberg Kravis Roberts & Co., Carlyle Group and other private-equity firms interested in buying its asset-management unit. Lehman is mulling all options and hasn't concluded any of the discussions yet, the person familiar with the matter said. Fuld will decide in the next 10 days how best to raise capital, the person said.

Lehman (LEH) Daily Chart

(Click on charts for sharper image.)

Yesterday Lehman gapped up to 17.73 and I called it ridiculous. It was ridiculous.

Why were Fannie (FNM) and Freddie (FRE) equity and preferred shares going to zero supposed to be a savior for Lehman?

Here is the chart I posted in Stunning Reversals.

Lehman 5 Minute Chart

Today Lehman traded as low as $8.00. If Lehman cannot quickly raise capital, $8 is still ridiculous.

Bloomberg is reporting Wall Street Trading Gets Zero Value From Lehman, Merrill Owners.

Lehman Brothers Holdings Inc. is trying to sell its fund-management unit to cover further mortgage- related writedowns. If it does, what's left won't be worth much, based on how investors value the firm.

Lehman's market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors' valuation of the rest of the third-biggest U.S. securities firm is zero.

Goldman Sachs Group Inc. analyst William Tanona estimates another $12 billion of losses for the three firms in the third quarter. Those probably will wipe out any trading revenue for the period. ...

Investors are having a hard time valuing the rest of the business at Lehman because there's no transparency about the mortgage securities on their books, said Janet Tavakoli, author of "Credit Derivatives & Synthetic Structures." Lehman, Merrill and Morgan Stanley borrowed heavily to fund their mortgage investments, which is coming back to hurt them, she said. The three investment banks' total assets were about 30 times their capital levels last year.

Minyanville professor Bennet Sedacca is writing about Lehman preferreds and Washington Mutual (WM) credit default swaps [CDS]:

On Deck: Lehman
Lehman(LEH) preferreds are now offered in size at 17%.
Washington Mutual (WM) CDS are trading around the 30% level.
Methinks LEH is next.
And if you own the preferreds, you can expect... zero.
The best case is that the company sells its good assets and ends up a carcass. Meanwhile, most of my Street contacts won't trade with 'em.

Lehman's CEO talked about "key strategic initiatives". THE key strategic initiative is to raise capital. And no one is biting. Without capital it is the end of the line. Lehman's equity is worthless. Depending on the agreement to raise capital, its shares could be worth zero even if it does raise capital. Anyone smell another Fed-sponsored shotgun marriage coming up?

Comments

[tuskagee:]

Short and Distort artists kill another business. Thanks, Einhorn.

2008 Sep 09 05:31 PM

[.crazylegs..:]

No, what killed them is LEVERAGE. Einhorn, et al only profited from the decline.

2008 Sep 09 05:37 PM

[turkeyeyes:]

Einhorn precipitated the panic. He yelled 'Fire' in a crowded theater. Don't delude yourself. The SEC should eat him alive.

2008 Sep 09 07:01 PM

[John C. Lee:]

LEH reporting tomorrow, not next week.

2008 Sep 09 07:32 PM

[Hoosier:]

einhorn is right. its going to zero. Without its asset mgmt business the firm is just a bunch of old chairs tables with an outdated trading platform

2008 Sep 09 09:15 PM

[Tom Armistead:]

ANother short and distort victim about to bite the dust. Meanwhile the SEC does nothing.

2008 Sep 09 09:47 PM

[Fish Gone Bad:]

I really like Einhorn. His long picks have not been the greatest, but he certainly did call Lehman. Lehman going down has made me a great deal of money. Thank you, thank you, thank you David Einhorn!

Clark Jenkins
FishGoneBad.com

2008 Sep 09 09:54 PM

[ozcutty2:]

Yep, LEH is goooooooooooooonnnnnee...

Who will pick up the peices? JPM, BAC,WFC?

2008 Sep 09 10:28 PM

[SA Editor M...:]

Re Weekly TA's comment- tomorrow Lehman is releasing its estimates, not its actual quarterly results. See announcement and links to further information here: www.lehman.com/press/p...

2008 Sep 09 11:38 PM

[GKM:]

Maybe the lemmings shouldn't have allowed themselves to get packed into the crowded theatre in the first place. Play with fire and your bound to get burned no matter who calls out to alert the fire department.

2008 Sep 10 12:22 AM

[PAUL&&SHARK:]

Even you comment on what is speculation,I like speculations as I thrive on it,I will not hang you right now,today it's only kick in the ass as you are good boy.

2008 Sep 10 07:33 AM