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Monday, June 9, 2008

Banks, Lehman: Busy Lying and Raising Funds

More fun stuff from Lehman (LEH).

Lehman Loses $2.8 Billion, Plans to Raise $6 Billion (Update1): “Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, reported a record $2.8 billion second-quarter loss and said it will raise $6 billion in capital in a public offering.

Lehman fell as much as 11 percent in New York trading after the firm said it sold about $130 billion of assets during the quarter. The New York-based bank reduced mortgage-related assets and leveraged loans by about 20 percent, it said today in a statement. The figures are preliminary and the final results will be released June 16.

Chief Executive Officer Richard Fuld, 62, is adding to the $8 billion he raised since February to quell concern that the collapse of the mortgage market would bring his firm down. Financial companies have raised more than $285 billion from investors to make up for almost $390 billion in writedowns and credit losses.”

I don’t even know where to begin.

First, LEH was expected to lose ‘just’ $300 million. Losing $2.8 billion is $5.14 a share and way beyond expectations.

Second, LEH also insisted that they did not need to raise any capital up until late last week. Raising $6 billion in COMMON practically screams desperation.

Third, LEH announced that they would report earnings early. This strategy is particularly DIRTY. Normally such an announcement implies better than expected results and is done to calm nervous markets. LEH and the broader markets rallied on that announcement. Some of the longer term shareholders may have acted on that announcement only to get raped twice over: Once with a greater than expected loss and second with a massively dilutive common share offering.

The markets continue to bet against LEH and massively so. (Lehman Put Open Interest: Just Like Bear Stearns) The clowns at LEH are a bunch of liars.

Speaking of liars…

RBS Shareholders Take 95.1% of Stock in Rights Offer (Update2): “Royal Bank of Scotland Group Plc said shareholders bought 95.1 percent, or 11.6 billion pounds ($22.9 billion), of stock in the biggest European share sale and the first by a U.K. bank since the credit-market seizure.

Investors took up 5.8 billion new shares at 200 pence apiece, acquiring 11 new shares for every 18 held, the Edinburgh-based company said in a statement today. Underwriters Goldman Sachs Group Inc., Merrill Lynch & Co. and UBS AG will seek buyers for the remaining 299.4 million shares, RBS said.”

I first brought them up in LIBOR Liars: UBS, HSBC and Royal Bank of Scotland and again in Update1.

Another one of those liars is UBS:

UBS Falls as Rights Offer Nears End, Report Predicts Loss: “UBS AG, the European bank hardest hit by the U.S. subprime contagion, fell in Swiss trading as the company's 16 billion-franc ($15.7 billion) rights offer neared an end and a report said the bank may post a second-quarter loss.”

The rumor is for another $4 billion loss…

Barclays May Get Outside Funds to Replenish Capital, People Say: “Barclays Plc, the U.K.'s fourth-biggest bank by market value, may sell shares to replenish capital depleted by credit-market writedowns, two people with knowledge of the matter said.

The fund-raising would bolster the London-based company's so- called Tier 1 capital ratio, which trails Edinburgh-based HBOS Plc and Royal Bank of Scotland Group Plc. Barclays needs at least 7 billion pounds ($13.8 billion) to strengthen its balance sheet as asset markdowns increase, according to estimates from analysts at Lehman Brothers Holdings Inc. and Citigroup Inc.”

In Fragile Banks: More Bailouts, More Capital I wrote: “Bottom pickers in financials are going to get whacked. Wait for all the capital raising to have been concluded. You won’t miss out. Prices will languish for years as the banks work through their balance sheets and retrench.”

With the Banking Index (BKX), Mortgage Finance Index (MFX) and the S&P 500 (SPX) all having cracked support, and with oil (WTIC) going to the moon only a fool would be long equities into the first consumer lead recession in decades.

The Bear market rally is over. 1440 will stand for quite some time. Time to test and smash the lows. 1255, here we come.

Related Posts:
The Bank and Mortgage Index: Nothing But Trouble

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