Lehman Brothers (LEH) Looking Sick Again

The stock action in investment bank Lehman Brothers (LEH) continues to fascinate me. If you recall a week ago Monday, this firm appeared headed off the same cliff as Bear Stearns (BSC) [Mar 17: Bear Down, Lehman Brothers Next?], but their earnings report Tuesday AM (along with Goldman Sachs') combined with the opening of the discount window direct to these firms a week ago Sunday night, seemed to soothe the savages at the gate. Lehman rallied 50% off its abyss low. But the action since has been in a word... troubling. I obviously have no information and we'll never know what is going on behind the scenes but it's all starting to smell very familiar. The same rumors, the same denials, the same pack action that doomed Bear. What would be troubling if this repeated itself is the Federal Reserve literally has availed its balance sheet to the investment banks - so if we have a "run on the bank" with that backstop; well it would be a scary situation because it would imply not much is safe. And we'd have lost our 4th and 5th largest investment banks - leaving only the big 3. Remember, it's all about confidence for the banks - perception is reality (which I love to say) is never more true than in this sector, full of its hocus pocus black box, mark to model, mark to mythology, off balance sheet accounting and lack of transparency.

Very interesting drama playing out - I wonder if Hank is one the phone lining up the next "suitor". Oh to be a fly on that wall... if this price breaks down below $35, I assume the Bat Signal will be sent out to the skies of Gotham city and Uncle Hank will break out his Utility Belt flush with printed greenbacks and blackbook of friendly risk free bailout partners.



I remain perplexed that the market is not treating Merrill Lynch (MER) with the same doubts. Very strange as they are part of the core of the problem along with Citigroup (C). At this point (and looking at the charts) it appears only Goldman Sachs (GS) [not only full backing of government but has people placed throughout the system] and Morgan Stanley (MS) appear (cough) safe. By safe, I mean we won't wake up to the possibility of Bear II.

• Shares of Lehman Brothers (NYSE:LEH - News) fell by nearly 10 percent in early New York trading on Thursday on rumors that the fourth largest U.S. investment bank could see a run on the bank similar to what happened to Bear Stearns (NYSE:BSC - News), traders said.
• Declines in Lehman's shares on Thursday are "all being tied to fears of Bear Stearns," said Robert Bolton, head trader for Mendon Capital Advisors in Rochester, New York. "Does another broker dealer go the route of Bear Stearns with regard to their solvency and the like."
• Kerrie Cohen, a spokeswoman for Lehman Brothers, said, "There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest."
• The U.K.'s Times reported on March 19 that the U.S. Securities and Exchange Commission (SEC) was probing whether hedge funds and other market players deliberately circulated false rumors about Lehman Brothers to push the company's shares lower. (once again highlighting the special preference these banks get - I see a lot of companies complain about this over the years, but their complaints are ignored - but my gosh, when its a NYC bank time to get the SEC here pronto! Now it matters! And of course traders in these banks, trying to make unfair profits, NEVER pass along rumors so that THEY can benefit right? Funny when the shoe is on the other foot....)
• In addition, large bearish bets on Lehman in options markets contributed to selling pressure, some traders said.

After the market closes tonight, we'll find out how the $75 Billion "give us your tired, your poor, your junky mortgage" Federal Reserve auction went. Somehow I get the feeling every last dime will be handed out in our nanny state banking system.