What going on with Lehman Brothers?  

Despite a lot of rumor-mongering recently, no one really expects Lehman Brothers to face a Bear Stearns-like fate. That said, there is a lot of nervousness about the firm's upcoming earnings report. And a bulls vs. bears war is raging. Recall that David Einhorn of Greenlight Capital has taken a well-publicized short position on the stock.  

Most analysts are expecting a loss, the first since it went public in 1994. Hedging woes seem to be the culprit. The issue is what the firm will do in response. There have been dueling media reports about whether the firm will raise capital via some sort of an offering. The Wall Street Journal reported that the firm was likely to raise $4 billion via a common stock offering. Others in the media cast some doubt on that view.  

Standard & Poor's upped the anxiety when an analyst said the firm has "significantly higher risk exposures" than its competitors. It is okay, fortunately, with the firm's capital ratios as of now. But what if earnings really tank? If I had to handicap it, I'd say most people think it's more likely--perhaps only a little bit, though--that more capital raising is in order.  

It would behoove the company to get a grip on the PR situation. The last thing it wants is for rumors to circulate in an information void. In this environment, the mere threat of downgrade or capital woes can wreak havoc on a company acting as a counterparty. That's one of the lessons of the Bear Stearns situation. The company needs to make definitively clear what it's need and intentions are. If it doesn't now, look out.  

The stake are high. A Barron's article quotes someone wondering if Lehman CFO Erin Callan, the most powerful woman on the street, is the next Alan Schwartz.  

Hold on.  - Jim