Lehman’s days are looking numbered as the crisis of confidence continues, measured both in its stock and credit default swaps prices. The reason is simple: Lehman, despite its protestations otherwise, needed either to shrink its balance sheet more or raise more equity. Despite its claims that its $28 dollar stock sale was oversubscribed, we heard stories that quite a lot of arm-twisting was needed to get funding done. The recent performance of the shares would seem to bear that out.
So why the downdraft today, in a market that was only somewhat unkind to other financial stocks? First was the rumor of a takeunder. From Bloomberg:
“We’re hearing that there may be a possibility of Lehman being taken over,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $6 billion in San Antonio. “There hasn’t been any positive news on this firm for the last couple weeks and the value of the deal might not be in the best interest of Lehman shareholders.”
Forbes (hat tip reader Dwight) singled out Barclays as a possible suitor:
Another vote of no confidence came from the credit default swaps market, as noted by the Wall Street Journal’s Marketbeat, which also observed that end-of-quarter considerations may have player into the stock sales today (maybe, but why wait until the last day to act?):
Lehman has been one for the brave and nervous for months now, ever since Bear Stearns Cos. imploded in March. The company got through that month, but as credit concerns have come to the fore again, it’s been a popular target for short-sellers. Options activity leans to the side of put-buying as the stock sinks. Quarter-end issues could be coming into play, as some dump shares of a stock they don’t want listed among their holdings…
The company’s credit-default swaps, which measure the risk of default, cost more than on Friday. To protect $10 million in bonds for five years, it costs a bondholder $285,000, compared with $275,000 on Friday.