Bets against Lehman (LEH) have risen to 13% of the stock over the past two months, says the FT. The stock rallied modestly yesterday on a Merrill upgrade, but the fight continues.
David Einhorn, who has launched a one-man run-on-the-bank propaganda campaign, observes that Lehman’s tangible capital is levered 40-to-1, versus the 27-to-1 stat for total capital that Lehman is now bragging about. Merrill’s Guy Moszkowski, meanwhile, upgraded Lehman to Buy, saying a big Q2 loss is already prived in and that the Bear Stearns’ comparisons are silly because the bank has “ample liquidity” and access to the Fed window.
Lehman’s actual liquidity is obviously important, but even more important is the perception of that liquidity. Bear Stearns was killed not by mountain of crap on its balance sheet, but by spooked customers taking their money and running for the hills. Einhorn and others have scored a lot of points in the past week, and Lehman’s credibility has been damaged. If and when another shoe drops, it’s easy to see how Lehman customers might feel it would be safer to begin doing business with, say, Goldman Sachs.
Lehman has been smart to raise capital, even at the cost of painful dilution, and it will be smart to raise more. Given its willingness to do this, combined with the Fed window (at least through Sept, when the Fed is supposed to close it), a Bear Stearns-like fate is unlikely. But restoring its credibility is critical.