Investor speculation that Lehman Brothers Holdings Inc. may end up following a fate similar to rival Bear Stearns intensified during late trading on Monday, with the stock falling as much as 40 percent before recovering slightly when this story was published. MarketWatch had reported earlier in the day that most analysts covering the Wall Street firm were "loath to add to market speculation that the firm may be the next major brokerage to falter," at least during Monday's trading session:
Maintaining investor confidence will be key to keeping Lehman Brothers Holdings Inc afloat, at least for now, according to BMO Capital Markets analyst George Lazarevski. "Similar to Bear Stearns, the greatest risk for Lehman Brothers is the risk that once speculation begins, it becomes a self-fulfilling prophecy, and no level of liquidity will be sufficient," he told investors Monday.
The late fall in Lehman's shares came despite an earlier statement by the firm that it has successfully refinanced a $2 billion unsecured credit facility, a move that it said left it "well positioned" despite ongoing market turmoil. Officials at the Federal Reserve and the Treasury are likely watching Lehman closely; the Fed, in particular, has taken a series of unprecedented steps in an attempt to head off a meltdown of the U.S. financial markets. The latest was an announcement late Sunday approving a new lending facility at the Federal Reserve Bank of New York designed to prop up the ailing securitization market, as well as dropping the discount rate by 25 basis points in an effort to encourage investment banks to utilize the funding resources being provided. Sources that spoke with Housing Wire said that if the Fed's moves can't help the market pop, it's not likely that anything will. "This [the Fed's action] has to be considered a near-last ditch effort," said one source, a bond trader who asked not to be named. "If this can't do it, we'll have to start talking bail-out and not prop-up." A blog post at Yahoo! Finance's Tech Ticker noted an unofficial response by a Lehman insider -- who noted that the Wall Street firm differs in two key ways from Bear Stearns. For one thing, the source said, the Fed's new move to provide liquidity provides Lehman access to funds that Bear Stearns didn't have; had Bear had such access, it might not be the property of JPMorgan Chase & Co. right now. Secondly, the alleged Lehman insider said that the company's liquidity ratio is significantly stronger that that of Bear Stearns. Deutsche Bank analyst Mike Mayo seemed to echo similar sentiments on Monday, reiterating his belief that Lehman would "weather this storm," despite Lehman's $180 billion of repurchase lines. Share of Lehman Brothers were off 34 percent to $25.91 when this story was published. Disclosure: The author owned no positions in any publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.