This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: Lehman Can't Blame Shorts

Updated from 11:59 a.m. EDT

This blog post originally appeared on RealMoney Silver on April 2 at 8:15 a.m. EDT.

Yesterday, in an interview on CNBC with Maria Bartiromo, Lehman Brothers (LEH) CFO Erin Callan called on the SEC to investigate potentially abusive tactics of short sellers, whom she claimed were responsible for the continued pressure on her company's shares. (It is important to note that I currently have no stake, long or short, in Lehman's shares).

Callan's claim was shared by many Lehman shareholders, members of the media and others, including our own Jim "El Capitan" Cramer.

Here is her CNBC interview.

Implicitly, Lehman's CFO seemed to place a primary role on short sellers as the proximate cause for Lehman's share weakness. And, by inference, Ms. Callan dismissed the role that the following items may have had in the slide of the company's shares:

  • Lehman's disappointing earnings and revenue results, down 30%;
  • a levered balance sheet in which Lehman's liquidity is, to some degree, dependent upon the "kindness of strangers";
  • its broad mortgage and fixed-income exposure; and
  • an uncertain profits future, though she alluded to the likelihood of continued challenges "for several quarters to come" late in the interview.

Lehman's CFO contended that "perception trumps reality" and that the $4 billion convertible raise this week "endorsed the value of the franchise" -- even though, days before, Callan dismissed the need for capital.

When push came to shove, however, she claimed an escalation of the rumors and observable trading volume in Lehman's shares necessitated the capital-raising mode, which caused about a 6% dilution in the company. Her contention was that, recently, the normal daily trading volume had risen by nearly tenfold, suggesting that short selling (which purportedly continued to pressure Lehman's shares) was dramatically on the rise.

Let's examine her claims that short sellers have had an untoward role and have pressured Lehman's share price.

  • At yesterday's close, Lehman's equity capitalization stood at $24.45 billion.
  • Lehman has 551 million shares outstanding, and its float is approximately 528 million shares.
  • As of March 11, 2008, only 46.5 million shares were short, representing only 8.4% of the outstanding shares and only 8.8% of the float.
  • Over the past three months, Lehman's average trading volume was about 29 million shares a day, and over the last 10 days, the average trading volume was nearly 45 million shares. Therefore, days to cover are only 1.6 and 1.0 days, respectively, very low ratios.
  • The short interest has risen by only 3.3 million shares since last month.

Now, let's do a quick compare and contrast with Merrill Lynch (MER):

  • The short position in Merrill is about 37 million shares, or 4% of the outstanding shares and of the float.
  • The short position has risen by 5.5 million shares in the last 30 days and represents 1.2 days to cover on the three-month average daily volume and slightly less than 1.0 days based on the last 10 days' average trading volume, not materially different to Lehman.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
C $58.53 -0.59%
GS $206.82 -0.18%
JPM $68.75 -0.42%
MS $39.17 -0.33%
AAPL $121.24 -0.92%

Markets

Chart of I:DJI
DOW 17,722.46 -23.52 -0.13%
S&P 500 2,106.91 -1.72 -0.08%
NASDAQ 5,130.27 +1.4850 0.03%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs