Filed under: Analyst reports, Forecasts, Deals, Bad news, Wachovia Corp (WB), Lehman Br Holdings (LEH)
After a month or so when the market thought that financial stocks might recover, the firing of the head of Wachovia (NYSE:WB) is being followed by news that Lehman (NYSE: LEH) might have to raise $3.4 billion. If so, the company’s losses are expected to be much more massive than most analysts forecast.
The potential need for more cash raises several questions, one of which is whether CEO Richard Fuld will keep his job. According to The Wall Street Journal, “Lehman Brothers Holdings Inc., set to report its first quarterly loss since going public, is considering raising billions of dollars in fresh capital to help shore up its balance sheet.”
Experts believe that Lehman has more exposure to the mortgage market.
The news reinforces the idea that both banks and brokerages could post losses through 2008 and into 2009, which would push many of their shares under the 52-week lows most hit in March. That would mean a 10% to 20% correction for some. Any move to raise more capital would drive dilution, which would also pressure share prices.
While Wall Street may have hoped the problems at financial institutions were getting better, it turned out to be a mirage.
Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.
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