Lehman Has Already Spent All of the "Confidence" Money It Just Raised

By: Reggie Middleton | Wed, May 21, 2008
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Lehman Brothers raised $4 billion dollars to allegedly "prove" to the market that it was liquid and had confident investors and trading partners. I didn't believe that to be the real reason then and I really didn't believe it now. The news is out that the Fed has probably hit a floor in dropping rates, with inflation and unemployment concerns rising. As I stated in my earlier articles on the banking industry, this spells trouble for banks relying on expanding net interest margins to bail them out of their insolvency situations. I knew this was bound to happen, for effective (headline) inflation is out of control and we are bordering negative rates as it is. So as a result, those banks facing the potential of insolvency are now that much worse off. This is a big deal for the investment and commercial banks - a very big deal. My next few posts will concentrate on this, and I will wind them up with a few more of my personal shorts in the sector. Now, back to Lehman...

Lehman raised $4 billion dollars about a month ago. That is the credit. Now let's add up the debits:

Now, if we 4, subtract 1.8, less 1.7, less .1, we get $3.6 billion in outflow. I am assuming Lehman didn't net the full $4billion that was stated as the gross offering amount. So, roundabout, net-net, Lehman is pretty much back where they started from when the market was driving their stock down to $20. I am obviously not the only one who has this funny calculator since Lehman dropped 6.5% today. Let's not forget the Street's Riskiest Bank, which also fell $1.92 today. The Breaking of the Bear was not the only article that had the ability to appeary highly prescient against the back drop of the risky macro scene for banks: Banks, Brokers, & Bullsh1+ part 1 and Banks, Brokers, & Bullsh1+ part 2.

My next post will outline some of what I believe to be the riskiest commercial banks and thrifts in the country, at least the ones whose share prices are still high enough to attract my attention.



Reggie Middleton

Author: Reggie Middleton

Reggie Middleton

Reggie Middleton

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