Lehman Rebounds on Buyback Report

Because it has a business model comparable to Bear Stearns, which had to be rescued by the Federal Reserve and sold at a cut-rate price to JPMorgan Chase (JPM Quote) in a deal that Bear shareholders approved last week, Lehman is particularly vulnerable to negative swings in investor sentiment. Lehman is also now the smallest of the major investment banks, following the sale of Bear.

The latest concerns about Lehman have been stoked by a negative publicity campaign by David Einhorn, head of hedge fund Greenlight Capital, who has been shorting Lehman's shares. Einhorn has argued that Lehman has miscategorized some of the assets on its balance sheet. Lehman, however, has its prominent defenders, including the Sanford Bernstein analyst Brad Hintz.

Lehman has also taken a hit of between $500 million and $700 million on hedging positions as it tries to offset its heavy exposure to both commercial and residential U.S. real estate, the Financial Times reported Wednesday. Hintz also predicts that Lehman, like other brokers, will disclose serious losses on unsuccessful hedges when it reports second-quarter earnings.