Lehman Posts $2.8 Billion Loss, Ups Capital Raising Plan to $6 Billion

Lehman Brothers announced that it expects to report a $2.8 billion ($5.14 a share) loss and increased the amount of capital it will raise to $6 billion.  The official earnings report will be released on June 16th, where the company will provide details to its investors - those who chose to remain - as to how exactly they managed to lose all that cash.  Remember two weeks ago, when analysts were estimating a $300 million loss, and the company was only going to raise $3-$4 billion?  The numbers get bigger and bigger every week, giving credence to the fundamental belief by doubters of Lehman's future that the investment bank's management doesn't really have a handle on the value of its bloated assets.  CEO Dick Fuld said he was "very disappointed."  But went on to say that "with our strengthened balance sheet and the improvement in the financial markets since March, we are well-positioned to serve our clients and execute our strategy."  So why didn't Lehman make a bundle of money this quarter if the financial markets improved so much since March?   Either it was underestimating its losses last quarter, or its fortunes are no longer tied to the improvement in financial markets.  Neither explanation is comforting.  Several analysts believe that Lehman can't survive as an independent company and will be taken over by a commercial bank.  Seriously, which of the commercial banks is in the market for a large acquisition involving swallowing $700 billion or so of assets, many of them involving interpretive pricing on MBS, ABS, and derivatives, on its balance sheet?  Although Lehman reduced its leverage to around 25:1 from 31:1, that is still too much leverage for a commercial bank, meaning the bank would need to allocate significant amounts of capital against the new positions.  Given that banks are puking their own positions and begging for money from investors to shore up their own balance sheets, what bank in its right mind would risk an acquisition right now?  JP Morgan and Bank of America are still suffering indigestion from their acquisitions of Bear Stearns and Countrywide respectively.  Wachovia and Washington Mutual are getting pasted by losses in their huge loan portfolios.  Wells Fargo wouldn't risk pissing off Buffett by tarnishing its image as a conservative bank who avoided underwriting many of the toxic no-doc loans that other banks found too irresistible. Lehman will have to go it alone, which I know is how they want it to be.  The question remains:  Will they make it?   

Update on capital raising:  Lehman priced $4 billion in common at $28 a share and $2 billion in convertible preferred.  The shares were oversubscribed, much like Lehman's last convert that it issued on April 1, 2008.  Lehman, at the time, insisted it didn't need to raise capital, but did it to shore up confidence.  The issue was a big hit with investors, who gobbled up the convert, which was convertible into common at a price of roughly $49.87.  The good news is, if you liked the last convert, and didn't hedge by shorting stock against it, you can just dollar cost average down and maybe not look like such a jackass.  It's gotta bounce sometime. Right?