Why can David Einhorn affect Lehman’s (LEH) stock price? The answer is simple really.
It comes down to believe-ability. Einhorn has it, bankers do not.
Investors sitting and watching for the last few years have witnessed the savaging Bill Ackman took from bond insurers MBIA (MBI) and Ambac (ABK) as well as threats from NYC Insurance Commissioner Eric Dinallo. For years they asserted he was “off base” and accused him of spreading rumors, innuendos and outright lies. What happened? Everything Ackman said came to fruition yet he was still blamed for the world’s reaction to the prices of both company’s stocks. As though the actual crippling losses at both company’s has nothing to do with it.
Now it is Einhorn’s turn. Having been short Lehman since last summer, Einhorn is now being blamed for the current rush to sell the stock.
Here is the thing. Einhorn has been saying the same thing for a year now but the stock only cratered since February. Why? The things Einhorn has been saying are now coming true. Lehman has massive CDO exposure, has not written it down properly, has needed more money and has more loses in the works.
Lehman, for its own part is fanning the flames by denying they need money and then going out and raising more of it. Lehman’s advantageous disclosure on page 56 of an SEC filing that seemed to contradict public statements also lead investors to doubt management and gave Einhorn yet more ammunition.
Lehman’s management has spoken about Mr. Einhorn, but they have declined to comment publicly beyond a statement that says Mr. Einhorn “cherry picks” and misconstrues information. Isn’t good enough. Einhorn is being very specific in his critic of the company, unless your refutation of him is the same, you lose. Basically Lehman is saying, “trust us, he is wrong, by the way, got $4 billion you can spare?”
Crying about short sellers is a losers game. Why? If your results and disclosures do not give them anything to stump, they go away or get crushed. When you get into a “tit for tat” with them, they win unless you are 100% accurate and disclose everything not just in a filing, but in public statements. Unless you do both all the time, and Lehman has not, you lose.
PS. The NY Times described Einhorn as a “rabble-rousing hedge fund manager“. Having heard him speak, nothing can be further from the truth. Icahn? Yes, Einhorn? Not by a mile. Einhorn reminds one of a librarian.
Disclosure (“none” means no position):None
