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Cramer: Why Own Lehman?

Jim Cramer

At an investment symposium I attended last night, someone asked me whether I thought Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) was going under. I said, no, no I didn't think so. It's got a great franchise with a good cash position, reduced leverage, much better management than Bear (BSC Quote - Cramer on BSC - Stock Picks) and a buyback that's kicking in that wouldn't if things were as bad as the bears make it out to be.

So, the individual asked, would I buy the stock? I said, "Why the heck would I do that? To catch a 2- or 3-point rally? There is no earnings power at Lehman."

I explained that some stocks are neither longs nor shorts -- that, to me, is Lehman. There's no reason to short it, because I don't think it is going under but many are betting that way, and there is no reason to go long it, because the place is set up for a period of big fees from fixed-income products, from structured products, but clients have at last figured out that they will lose their jobs if they keep buying this nonsense.

And that's really the rub. These places have oodles of high-priced salespeople, tons of them, and they are all being paid fortunes to sell products that don't work. They sell broken vacuum cleaners with no warranties.

It is that stark.

I know that anyone in brokerage is always reluctant to admit that structured products really have no value or are too risky, that they're just a way to figure out how to take a little extra per million -- a fraction, but they do add up. But that's what happened to a lot of these great firms that got fixed-income-heavy. There isn't enough money to be made selling regular commodity fixed-income products, so you have to talk people into buying things they shouldn't that they don't understand.

That game is over. But the people are still there, as is the overhead. Without this stuff, I don't know how you make a lot of money at an investment firm, particularly when you have decided to shrink your balance sheet and make fewer loans. Some can get away with it: Bank of America (BAC Quote - Cramer on BAC - Stock Picks), for instance, because it has a deposit base (same reason Wachovia (WB Quote - Cramer on WB - Stock Picks) is worth something, but I don't want to own it, either), doesn't need to rely on structured products to make some money.

LEH? I just don't see how they can deliver $5-6 earnings power anymore. Worse, I can't even figure out what they could earn in this environment. The franchise isn't too dicey, just the earnings estimates.

I have so many companies that are delivering consistent, good numbers, why do I need a company that has a fraction of the earnings power that it used to have?

No, I don't want to own Lehman.

Random musings: Doug Kass, a major topic of last night's investment shindig because of his bullish call on the banks, is growing even more bullish on the group. I simply DO NOT share that cause!

At the time of publication, Cramer had no positions in the stocks mentioned.

Jim Cramer writes about all the stock trades in his charitable trust for TheStreet.com in Action Alerts Plus. Recent stocks he's traded in this account include Deere(DE Quote - Cramer on DE - Stock Picks), Discovery(DISCA Quote - Cramer on DISCA - Stock Picks) and Altria(MO Quote - Cramer on MO - Stock Picks).