A quick post about Lehman. Bloomberg reported today that Lehman Brothers sold an additional $3 billion dollars of preferred stock to shore up their capital and stop the insolvency rumors that continue to swirl around Wall St. This "guido" loan is at the following terms:
"Terms of the offering include a coupon payment of 7 percent to 7.5 percent. The conversion premium will be 30 to 35 percent above the current stock price, according to people familiar with the offering who declined to be identified."
Lehman just yesterday was defending itself saying that everything is fine and claimed that they had a VERY STRONG cash position. I have quickly learned during my investment career that when a financial starts to vehemently deny that there is anything wrong is when you should be most afraid. Bear Stearns was on CNBC saying everything was fine 2 days before it blew up.
I loved the quote coming out of Lehman explaining why they did this $3 billion offering:
"We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Chief Financial Officer Erin Callan said in an interview. ``This is an endorsement of our balance sheet by investors.''
Well if you didn't need the money then why did you dilute your share price and borrow it at at a rate of 7% plus? Remember they also have access to the $200 billion at the Fed discount window. Why wouldn't they simply use the discount window? The terms are at a much better rate then the terms they agreed to today.
They also failed to say that the deal is totally sold. They claim to have the deal almost completely sold.
I don't know what Lehman's status is, but these are not the type of actions you like to see ONE day after you said that your cash position is solid. Its a pretty logical conclusion that they needed the money based on the terms of the deal. It will be interesting to see how this plays out.