Lehman to Raise Capital, "Analysts" Fear Steeper Losses

Lehman Brothers may raise $3 - $4 billion in capital, according to "analysts". Those in the know are expecting Lehman to report the capital raising plan in conjunction with an average estimated loss of $300 million the week of June 16th. The generic press releases issued by Reuters and the Wall Street Journal claim that analysts and Wall Street executives don't know the exact amount of capital to be raised, but they fear it is an indication that Lehman will report steeper losses than anticipated. This is interesting indeed. Apparently, analysts are expecting the company to raise significant amounts of capital based on the fact that analysts are underestimating the losses that Lehman will report. Are these two different groups of analysts? Who is really behind this press release? Lehman's stock has taken a dive in the past two weeks and options volatility has spiked again. Although volatility has not returned to levels reached around the Bear Stearns debacle, it is still high enough to wonder why so many investors are loading up on out-of-the-money puts again. David Einhorn of Greenlight Capital, a very vocal and noted shortseller has stepped up his case against Lehman's accounting. His main complaint, among many, is that Lehman has not adequately written down the value of its $6.5 billion CDO portfolio. Apparently, Lehman only marked the securities down by 3% in the last quarter, which is not realistic given that 25% are below investment grade. According to Mr. Einhorn, the CDOs wouldn't get more than ten cents on the dollar in today's market. Lehman dismissed his claims, pointing out that Mr. Einhorn is a short-seller and aims to profit from a drop in the stock. Clearly, the market hasn't brushed his comments off. And that is a very big problem for an investment bank who needs to go to the well every single day to get financed.