Lehman Sinks In The Hudson River

Shares of Lehman Brothers (LEH.N) plunged 13.6 percent on Wednesday, bringing
their total loss in the past four days to more than 25 percent, on concerns
about the potential for further write-downs and investors' declining confidence
in the investment bank's management. if(window.yzq_d==null)window.yzq_d=new
Object();
window.yzq_d['issTLELEYpE-']='&U=13f2m45oe%2fN%3dissTLELEYpE-%2fC%3d664534.12701\
061.13026761.1414694%2fD%3dLREC%2fB%3d5371788%2fV%3d1';
The stock's latest drop followed a newspaper report that Lehman could seek
more capital after raising $6 billion on Monday, and a downgrade by a prominent
analyst. Shares of the fourth-largest investment bank fell to $23.75, their
lowest close since October 2002.

The Financial Times said on Wednesday that Lehman had sought capital from
Korean financial institutions, and may still enter a deal with them later this
year. Lehman said on Monday it expected to post a roughly $2.8 billion quarterly
loss next week.

"They diluted the shareholders that much, and now they may need more capital?
There's a real crisis of confidence in management here," said Bill Smith, chief
executive officer of Smith Asset Management, which sold its Lehman shares at the
open Wednesday morning.
A spokesman for Lehman declined to comment.

Credit markets do not seem as concerned about Lehman, but some investors have
been preparing for steep drops in the bank's shares. David Einhorn, whose
Greenlight Capital hedge fund is shorting Lehman shares, has repeatedly accused
the investment bank of understating the extent of its losses.

Merrill Lynch analyst Guy Moszkowski cut Lehman's ratings to "neutral" from
"buy" on Wednesday afternoon, and said it believes Lehman is trying to value
assets appropriately, but there still may be more write-downs coming for
mortgage and real-estate assets.

"Real-estate assets and mortgage-payment delinquencies remain under intense
pressure," Moszkowski wrote in his note, in which he cut Lehman's share price
target to $28 from $36.

Lehman has an estimated $60 billion of real-estate-related assets on its
balance sheet, the analyst said. The downgrade came just a week after Merrill
had upgraded Lehman.

OTHERS LESS CONCERNED

In the credit derivatives market, the cost of protecting Lehman's debt against
default is about two-thirds its level in mid-March, when Bear Stearns suffered a
run on the bank.
The relatively low price of insuring Lehman's debt implies that demand from
banks and clients to hedge their credit exposure to Lehman is hardly outsized.

Over the last week, more than a dozen clients, dealers and banks told Reuters
they were trading normally with Lehman, but two funds said they had reduced
their exposure.
Investment banks are much less likely to crash now that they can borrow funds
from the U.S. Federal Reserve, an option unavailable to Bear Stearns, analysts
said.

Larry Fink, chief executive of BlackRock Inc (BLK.N), the biggest publicly
traded U.S. money management firm, told CNBC on Wednesday, "Lehman is not a Bear
Stearns situation." BlackRock bought Lehman shares earlier this week.

"Lehman Brothers is adequately structured in terms of avoiding a liquidity
crisis. That was what the Bear Stearns problem was," Fink said.

Lehman's shares dropped amid a broader decline in financial stocks, but
Lehman's shares suffered the biggest decline among the top U.S. investment
banks.

That's in part because of questions about the company's management, said Anton
Schutz, a portfolio manager at Mendon Capital, which owns Lehman shares.
"Investors were really disappointed on Monday," he said. Goldman Sachs
(GS.N) shares slipped 2.9 percent to $162.40, and Merrill Lynch & Co Inc (MER.N)
fell 6.6 percent to $35.46. Lehman is taking steps to scale down its risk.
It decreased assets by about $130 billion in the second quarter, and has raised
$10 billion of common equity and equity-linked capital in recent months.
Lehman's holding company has about $100 billion of cash and assets it could
easily sell or finance. Brad Hintz, analyst at Sanford C. Bernstein, said
in a note to investors on Tuesday that Lehman was taking the steps it needs to
make its balance sheet "bulletproof," but Bernstein believes Lehman faces
significant challenges in the future. The cost of protecting Lehman's debt
against default in the credit derivatives market rose
about 30 basis points on Wednesday to 283 basis points, or $283,000 a year for
five years for every $10 million of debt protected, according to Markit. That
figure was about 465 basis points in mid-March.