Through the weekend the management of Lehman (LEH) is desperately meeting with any investors who will hear its case. According to the Telegraph, these includes Korea Development Bank, Chinese broker Citic Securities, and “a number of sovereign funds from the Middle East, which have been invited to participate in a capital-raising. These are understood to include investors from Abu Dhabi and Qatar.”
Lehman investors should not become overly excited. Several sovereign funds have been burned by putting money into big US financials like Citigroup (C). Citic was about to drop capital into Bear Stearns, only to watch it fail. The mortgage crisis in the US could go on well into 2010. The most well-known American banks and brokerage are not immune from failure.
If Lehman does get capital, current shareholders could face tremendous dilution. The firm’s stock trades at $16, giving it a market cap of $11.2 billion. An investment of $5 billion with the money coming in below market or with substantial warrant coverage, should take Lehman’s stock down to $7 or $8.
Lehman may make it an as independent company, but those with stock in the company will come close to being wiped out.
Douglas A. McIntyre
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