saw its stock rise sharply Thursday behind a report from Deutsche Bank analyst Mike Mayo, dismissing the possibility that the investment bank will fail.
Lehman shares recently were up 9.3% to $34.31, as it rallied a second straight day. The stock had
this week, amid concerns about the bank's capital level that echoed the downfall of
. Such fears, Mayo writes, reflect "an exaggeration of many of the concerns that have been around for the past couple months."
Mayo says he expects Lehman to raise some $4 billion in equity, in order to counter fears that have caused the cost of insuring Lehman's debt against default to rise. Lehman also received a ratings downgrade from
Standard & Poor's
three days ago, as did competitors
. Nonetheless, Mayo says "liquidity is not a major issue" for Lehman, and he believes revenues will continue to grow for the brokerage house.
Cramer: No Reason to Own Lehman
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Because it has a business model comparable to Bear Stearns, which had to be rescued by the
and sold at a cut rate price to
in a deal that Bear shareholders approved last week, Lehman is seen by many investors who have a bearish view of the markets in general as the logical next shoe to drop.
Lehman's stock cratered in March on the same concerns, which have been revived in recent weeks for reasons that are difficult to pinpoint. Mayo argues in his report that "not so much has changed" since May 5, when he published his last analysis of Lehman. On that day, Lehman's stock closed at $45.63, well above its level of $31.40 closing price on Wednesday.
Mayo does not mention short sellers in his report, though vocal criticism from David Einhorn, head of hedge fund
, appears to be at least partly responsible for the current negative sentiment around the stock. Einhorn, who is short Lehman's stock, has argued that Lehman has miscategorized some of the assets on its balance sheet.
Whether or not Einhorn proves to be correct, much of the debate around Lehman and other investment banks will continue to focus on how much information they disclose on their balance sheet. In a report also published Thursday, Oppenheimer analyst Meredith Whitney predicts that in second-quarter earnings reports, brokers will for the first time provide certain information about their capital positions that has until now been made only by commercial banks. This information, known as a Tier I capital ratio, allows investors and analysts greater insight into how much equity banks have at their disposal.
Whitney believes these disclosures will ultimately cause investment banks to raise more equity. "Capital will once again be at the forefront of investors' minds," she writes. "It is no doubt in the best interests of every financial company in this environment to be as well capitalized as possible, and with continued industry headwinds, we expect the potential for continued capital raises throughout this year and potentially into next."