Tuesday, June 10, 2008

Lehman Credibility ?

Even though Lehman did take write-downs, reduce leverage and raise capital in the second quarter, he says it's not enough. "Lehman is raising $6 billion that they said they didn't need to replace losses that they said they didn't have," Einhorn said Monday. "Since the credit markets actually improved this quarter, such losses primarily reflect losses that might have been taken in prior quarters. A preliminary analysis of the pre-release and conference call suggests that there are still unrecognized losses on the balance sheet." Source

Oppenheimer & Co. banking analyst Meredith Whitney on Tuesday slashed estimates for Lehman, lowering her full-year estimate for 2008 to a loss of $3.34 from a profit of $1.58. "There is too much uncertainty with potential losses on Lehman's remaining gross exposures," even though the shares may seem ``inexpensive'' at 0.9 times book value, Whitney wrote in the note today. Source "We estimate that the most recent capital raise is 30% dilutive to existing shareholders," Oppenheimer's Whitney wrote, "and that the sheer size of such a dilutive capital raise will put serious pressure on Lehman's ability to deliver on meaningful earnings per-share growth over the near to medium term."Source

Wachovia's Sipkin remained skeptical as well about Lehman management's take on what caused the losses and how they were valued."Another surprising development was the fact that losses were triggered by mark-to-market adjustments, not so much by hedging or asset sales as previously indicated," he said. "This is another fact that is somewhat inconsistent from what we heard in the past." Source

Sipkin downgraded the stock to "Market Perform" from "Outperform," questioning Lehman Brothers' timing. He said the company could have raised "meaningfully more equity at higher prices" if it had offered the new shares in April. On April 1, the company raised $4 billion by selling preferred stock at a price of $49.87 per share. Source

Lehman's Callan assured investors and the media in March that a $1.9 billion preferred stock sale "took care of our full-year needs" for funding. But several weeks later, as the rumor mill spun furiously with questions about Lehman's health, the firm raised an additional $4 billion. On Monday, the firm raised another $6 billion. Source