PIMCO rumours Crush Lehman (LEH): Here We Go Again...

JP Morgan CEO Jamie Dimon wants people who pass on rumours to be thrown in jail. So round up another few thousand of the usual suspects.

Lehman (LEH) fell 22% to $15 this morning on rumours that some trading partners, including PIMCO, were cutting it off (for those with really short-term memories, this is what killed Bear Stearns: Not the rumours–the fact that trading partners were cutting it off). PIMCO has since said explicitly that it is still trading with Lehman, but even this denial leaves plenty of room for concern.

Are Lehman’s trading partners really spooked, or is this just another roundhouse scuttlebutt punch? We have no idea. We will say this, though:

  • We can’t understand why Lehman can’t convince partners it has ample liquidity: The firm has raised $10 billion already this year, including $6 billion last month. (Yes, we know, if half of its partners demand their money, the liquidity will evaporate, regardless of how much there was to begin with…)
  • That said, if Lehman is to be killed by a run on the bank, this is exactly what it will look like when the run is in progress.

See Also: Lehman CEO Richard Fuld: I’ve Done a Terrible Job This Year, So I Won’t Pay Myself $40 Million

The WSJ:

Pacific Investment Management, the giant fixed-income asset management company, denied Thursday that it’s pulling trading lines with Lehman Brothers Holdings, a rumour that sent shares of the investment bank to new lows earlier in the day.

PIMCO continues to trade with Lehman,” Mark Porterfield, a spokesman for the company, said in an email to Dow Jones Newswires.

Lehman’s already battered shares plummeted to a new low Thursday amid the Pimco rumours. Lehman lost $2.8 billion in its second quarter as its mortgage-laden balance sheet continued a yearlong decline in value, but its executives have repeatedly said it has sufficient liquidity to support its cash-reliant fixed-income trading businesses.


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