Investing Opinion
Kass: 5 Reasons I'm Long Lehman
Doug Kass
07/15/08 - 11:59 AM EDT
This blog post originally appeared on RealMoney Silver on July 15 at 9:41 a.m. EDT.
I decided to go long Lehman Brothers' (LEH) common stock yesterday, and I purchased more today in premarket weakness.
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1. At $11, Lehman is selling at a value equivalent to its Neuberger and Berman wholly owned subsidiary.
2. Lehman's management is focused. The company has markedly reduced its leverage and ended second quarter 2008 with the lowest debt ratios in the brokerage industry. After the mid-June raise, the firm's leverage ratio was about 10 times and its Tier One Capital ratio was the highest among the major brokerages (at over 13.5%).
3. Deleveraging is continuing apace. Commercial and residential mortgage assets have been reduced by over 20% in the most recent quarter, and the company will likely reduce those exposures by another 15% to 20% by the current quarter's end.
4. Liquidity is in reasonably good shape as the brokerage has little dependency at this time on commercial paper or other short-term unsecured financing. Its secured funding has changed little.
5. A combination of a $12 billion equity capital raise coupled with the deleveraging should allow Lehman to reinvest in other profitable business areas.