Happy Memorial Day Weekend!
I am out of here until tomorrow. I wanted to just leave with a quick note on Lehman Brothers. The market sold off today on the housing/oil news. I hinted yesterday that today could be a solid day in the red for the markets heading into the long weekend.
Just a quick note on Lehman. It looks like they are taking some heat by not writing off enough of their rotten smelly assets. Here it is from Reuters:
"NEW YORK (Reuters) - Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) has not written down bad assets enough, and should raise large amounts of capital to support its assets, short-seller David Einhorn told investors.
A spokesman for Lehman declined on Thursday to comment on Einhorn's remarks at the Ira W. Sohn Investment Research conference on Wednesday.
Einhorn said Lehman Brothers only wrote down a $6.5 billion collateralized debt obligation portfolio by about $200 million in the first quarter.
That small write-down is surprising given that Lehman said in a footnote to its quarterly filing with regulators that about 25 percent of the CDOs were junk rated, Einhorn said. The CDO portfolio in question does not have exposure to subprime mortgage loans, but does have exposure to small business loans, consumer loans, and other assets.
Einhorn said that Lehman Chief Financial Officer Erin Callan, when asked about the magnitude of this write-down, did not explain the first-quarter write-down. But he said Lehman would expect to record further write-downs in the second quarter on the assets.
"Said Einhorn on Wednesday, "When management teams complain about short sellers, it is a sign that management is attempting to distract investors from serious problems."
My Take:
What I find interesting here is the muted response from Lehman. If you recall the last time the heat was on, Lehman was defiant and immediately went on the offensive, insinuating that short sellers were trying to force another Bear Stearns type event.
They seem awfully quiet this go around. Also, I took notice that the CDO in question has zero subprime and is mainly small business and consumer based.
That's a little frightening! This is the first time I have seen any serious pressure to take marks on CDO's that don't involve subprime.
What does that say about the consumer and the economy?
Expect another capital raise and more dilution of Lehman's shares shortly. The credit bubble continues to deflate leaving the financials in dire straits.
I hope everyone gets a chance to head to the beach and forget about the economy for a few days. Enjoy the holiday weekend and travel safe!
Happy Friday and talk to you tomorrow!
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