Filed under: Earnings reports, Forecasts, Deals, Merrill Lynch (MER), Morgan Stanley (MS), Lehman Br Holdings (LEH)
Lehman (NYSE: LEH) is about to announce that it has raised $5 billion, most of it from US investors. The New Jersey Division of Investment may take the largest piece of the action.
According to The Wall Street Journal, “The move comes as the firm is set to report a second-quarter loss of more than $2 billion, this person stated. Until recently, most analysts who follow Lehman have been predicting a loss of about $300 million.”
And, that’s the heart of the story. Lehman is the canary in the coal mine.
If losses at Lehman Bros. are roughly eight times greater than expected, it means that the number for firms like Merrill Lynch (NYSE: MER) and Morgan Stanley (NYSE: MS) are prone to be extremely poor. Most firms suffer from the same exposure to bad paper, especially mortgage lending derivatives. The hope that things were getting superior in the financial sector of the market turns out to be bogus.
It also raises the subject anew of what huge banks and brokerages will do if they’ve to go back to the market for money. Sovereign funds may not be willing to take another round of risk. The fewer the number of available investors, the worse the terms. And, the tougher it is on current shareholders.
Douglas A. McIntyre is an editor at 247wallst.com.
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