The amount of capital Lehman Brothers (LEH) doesn’t need to raise continues to increase. The FT says Lehman will likely announce Q2 earnings and a $5-$6 billion capital infusion as early as Monday or Tuesday. The firm will also reportedly announce mortgage writedowns–perhaps the ones shortseller David Einhorn said it should have taken last quarter–as well as a $600-$700mm loss on hedges.
Though surely a bitter pill to swallow, this is a smart move. On Friday, former Lehman CFO reported that some of the firm’s clients were getting nervous about doing business with some Lehman subsidiaries. As Bear Stearns demonstrated, when clients get nervous, a firm’s liquidity can go from “fine” to “zero” in a matter of hours.
If the market’s Friday plunge carries over to Monday, Lehman will be raising capital in a horrible environment, which could make the dilution even more painful. The chatter last week was that Lehman might pursue a rights offering, which would give shareholders the ability to pony up and maintain their ownership stakes.