Lehman Brothers (LEH) may be forced to raise another $3-$4 billion in capital, the WSJ reports, and is on the verge of announcing its first quarter lossly since going public.
Not necessarily, at least relative to the fate of Bear Stearns. But a severe blow to the firm’s credibility.
Lehman is having a public spat with shortseller David Einhorn, who says the firm is in denial about how badly off its balance sheet is. As recently as a week ago, Lehman countered by saying it was in fine shape and accusing Einhorn of “cherrypicking” bad news to scare the pants off investors and trading partners and start a run on the bank. But yesterday, Lehman’s stock fell another 8%, as analysts predicted big writedowns and capital raising are on the way. The WSJ puts the writedown figure at $2 billion.
Lehman is likely to sell common equity, the WSJ says. This will badly dilute existing shareholders, who have already watched the firm’s market value drop from $45 billion to $18 billion and are now huddled in a corner in prayer. A sale of $4 billion at the current price would kneecap existing shareholders to the tune of an additional 20% or so, vindicating Einhorn and further damaging Lehman’s credibility.