Lehman Brothers (LEH) Posts first Loss since 94 IPO and Raises $6 Billion

Analysts miss another one; worst case was assumed to be a $300M loss and of course we were assured Lehman Brothers (LEH) did not need to raise capital - even now the "spin" is we are only doing this to appease investors, we don't really even need the money. *poof* $6 Billion more raised today. This is the problem with almost the entire financial universe at this point - people were clapping like seals when these companies continuously raise funds during the heart of the credit crisis P.B. (Pre-Fed Bailout), but "raising funds" means you issue more equity. Which cripples your earnings PER share (as floods of new shares are now part of the equation). So even when.... one day, things return to normal - the same amount of profits will be spread over so many more shares. This goes for many stocks in this sector - and the capital raising is not done yet... again, we have not even BEGUN the recession yet. Most of the damage thus far has been focused in the investment banks and huge money center banks - the next wave will come from the banks more tied to the local economies - the regional banks. Some of which won't be going concerns in 12-18 months. Anyhow, from my count this is the 3rd (or 4th) kitchen sink quarter? I cannot even keep track anymore. The bottom must be in, because they threw everything they could as a write off in this quarter (again).

If not for the Federal Reserve implicit backstopping of these investment banks with your tax dollars (free markets and all) we probably would be going down the path where after Bear, went Lehman - after Lehman went Merrill, and in the end we'd have 2 investment banks. But since we now live in a socialized market where risk is taken by the people to support the financial system, most likely we'll see a much smaller, weakened Lehman which will be part of a larger organization down the road. Too much of their business is in the new fangled brilliant credit instruments; some of which won't be coming back for a long time aka until a new generation of suckers is born - give it 10 years.

• Lehman Brothers(LEH) on Monday warned it would post a $2.8 billion second-quarter loss and said it would raise $6 million through common and preferred stock offerings.
• The loss comes to $5.14 per diluted common share, vs. a profit of $1.3 billion, or $2.21 per diluted common share, in the second quarter of last year. Analysts polled by Thomson Reuters had expected a loss of 22 cents a share in the second quarter.
• The firm expects negative revenue of $700 million, compared to positive revenue of $5.5 billion in the year-ago period. Analysts had expected revenue of $2.62 billion. The second-quarter results reflect negative mark-to-market adjustments and principal trading losses, as well as rising debt liabilities. Lehman also said it incurred losses on hedges this quarter "more than offset" gains from some hedging activity.
• Moody's Investors Service responded by lowering Lehman's outlook to negative form stable.
• The firm did not provide many details about its plans to raise capital. The preferred shares will be converted to common stock after three years, with cash provided in lieu of fractional shares. The firm said it had not yet determined the non-cumulative dividend rate, conversion rate and other terms.
• Lehman's shares have plummeted about 50% in 2008 as investors have grown concerned about its financial health and the extent of its exposure to toxic subprime mortgages.

The terms of the capital raise have not been announced yet so we'll see just how desperate they were once those are out. I expect similar negative surprises from all the investment banks, but frankly in the end the bigger ones will be strengthened as their smaller peers are weakened. So once again, in the end (although the near term could be rocky for them as well) Goldman Sachs (GS) will win. Goldman Sachs always wins.

Long Goldman Sachs in fund; no personal position