Lehman (LEH) is now playing games in an attempt to trounce shorts who, based on the firms results, have been correct in their analysis of the company.
One can argue that continuing to pay a dividend while raising capital in excusable. Many dividend stocks are in income funds that if they were to cease paying the dividend would be dumped, causing a further cratering of the stock price. For this reason, the argument does hold.
The can be no legitimate reason to repurchase shares while raising cash at the same time. Unless you are playing games..
The Wall St. Journal reported:
“The Wall Street firm’s shares had tumbled nearly 15% at one point Tuesday as investors who feared their stakes would be diluted sold shares and rumors flew on trading desks that Lehman had gone to the Federal Reserve for funds. Lehman said that wasn’t true.
But a second rumor, that Lehman was buying back shares, turned out to be true, people familiar with the situation said. Such buying helped the stock pare its losses Tuesday.”
It is one thing to repurchase shares because they are undervalued, it is another to do it simply to halt a slide in a single day. It is also irresponsible when most folks figure you are going to then turn around and dump these shares back on the market in another offering to raise more capital.
Now that the rumors are out there and at least this one is true, does Lehman really think it will not spur more conjecturing? The moves smacks of desperation and that in and of itself will lead people to now attemot to anticipate the real reason and what the next move will be.
Think about it. Financials are raising money at a discount to current share prices currently. What Lehman essentially did was repurchase stock it knows it will be forced to re-issue at a loss to whomever they get to provide them more capital.
Shrewed…
They can rail against Einhorn all they want and sit there and call him names, but, until their results refute anything he says, they will lose. Why? Currnetly their results are refuting everything they say…
Disclosure (“none” means no position):None
5 replies on “Lehman's Inexplicable BuyBack”
Inexplicable? No, as Barry discusses at the Big Picture they are attempting to stabilize while they cruise the globe searching for dough. Risky, and likely to backfire, but explicable none the less. If LEH does flame out sweet Erin rise and fall may be the fastest on record. Nobody, Hero, Zero in less than 2 quarters? Whoomp, there it is.
it is inexplicable because it defies common sense and will set off further panic
Time will tell, I doubt we see panic. LEH has friends, BSC did not. As the Street rallies round Fuld I think the selling abates for now.
did not you defend C dividends a while back when everyone pointing that a dividend cut is unavoidable. and they were criticized for their dividends policy while raising capital. you stood by them. Why is it different here?
sami,
i have addressed this, the banks, unlike the brokers are held widely in “income funds”. were the dividend eliminated or cut drastically, those funds would be forced to dump billions of stock crushing shareholders…
lehman is playing a game with short sellers. even the repurchase is just a drop for shareholder who are about to get crushed in another dilution.