Posted on 03/27/2008 10:36:11 PM PDT by TigerLikesRooster
Lehman slides 9% despite denial of market talk
Renée Schultes and Stephanie Baum
28 Mar 2008
Lehman Brothers was yesterday prompted onto the increasingly familiar territory faced by several financial institutions, in publicly acting to quash market speculation about its liquidity position, which wiped almost 9% off its share price yesterday.
In a statement Lehman Brothers said: “There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short-sellers of our stock that have an economic self-interest.”
Statements aside, Lehman Brothers closed down 8.9% at $38.71 yesterday.
At the same time, the price of insuring Lehman’s debt against default rose.
The swing in sentiment made clear that the boost afforded by the bank’s better-than-expected earnings last week and unprecedented intervention by the US Federal Reserve has faded amid concerns about investment banks’ fundamental businesses, according to a Dow Jones Newswires report.
Lehman Brothers is not alone in having to deny rumors of losses and liquidity—Bear Stearns, the UK’s HBOS and US fund manager BlackRock all have had to confront the speculation. With the exception of Bear Stearns, all have proved untrue.
Yet traders in the options markets continued to bet on a prolonged decline in Lehman’s share price, where three times as many put options traded, which reflects a bearish view, compared to call options, which reflect a bullish view, according to Bloomberg data.
The most popularly traded contract was the April put with a strike price of $30, which gives the buyer of the option to right to sell the stock up until the third Thursday of April for $30.
By 4:30 EST in New York, 28,136 contracts had traded, according to Bloomberg data.
A spokesman for Interactive Brokers, a futures broker, noted that April had 140,000 puts in April contracts, by the close of trading today which was “massive”.
Rebecca Engmann Darst, an equity options strategist with Interactive Brokers, said the catalyst for the decline in Lehman Brothers’ share price may have been the activity surrounding a July contract for a 10,000 put spread.
A put is an options contract that is purchased with the anticipation that the underlying asset’s value will decline. The owner either profits by selling the put option at a profit or by exercising it. A call is an options contract that allows the owner to buy a certain amount of an underlying security within a specific time frame.
A spokesman for Interactive Brokers said: “Three times the amount of puts were traded compared to calls. It was bearish day all around.”
The S&P 500 closed down 1.15% and other broker-dealers, including Goldman Sachs, Morgan Stanley and Merrill Lynch closed down more than 4% yesterday.
Credit default swaps on Lehman Brothers rose to a high of 290 basis points yesterday, according to Phoenix Partners Group. The contracts closed at 255 basis points on Wednesday.
Ping!
Hmmm...
once a great house....founded by some antebellum Alabama German-Jewish lads a long time ago...cotton factors to start i think
Best time to buy ever. S&P back down like I knew it would. Now where are those Freepers who were saying the blast-off in the markets last week signalled a bottom and we were off and running for the next bull.
One word — Derivatives.
Can you say “S&P 500 falls to 1000.” I thought you could...
“We are suspicious that the rumors are being promulgated by short-sellers of our stock that have an economic self-interest.”
Shorts need to be banned.
On what basis?
Why?
I’d rather see derivatives banned before shorts.
Naked shorts need to be banned and the ban enforced. But banning honest shorts? Don’t think so.
I shorted many, especially retailers, after the fake rally fueled by Tiffany’s numbers this past week. It was like a gift from the gods for this trader.
Tiffanys. What a joke. As if they are anything remotely to guage the consumer market on these days. Talk about wall street grasping at straws.
They have become any other watered down franchised luxury brand and the majority of their sales were from europeans coming to NYC in an orgasmic state over the current euro/dollar rate. They said it loud and clear during their earings statement.
Get ready for a long 2008. The fed is runing out of silver bullets.
Another reason I think that is that we've practically seen the gates of hell open up.....twice...and around DJ 11800 (let's call it 80 or so SPX points south of here) support has come in like a big smelly dog. Additionally...it's probably one one-hundred millionth as costly for the Fed to just buy up SPX futures as it is to continuously accept dirt for collateral from these banks. Though the Fed is going to do that as much as needed, without reservation, except for the most shoddy of collateral.
In the doggiest days of summer I could see the market lose DJ 11K, but I'd be very, very wary of being short in that particular hole.
I have seen bears just destroyed being permanently bearish, and it has cost me a lot over the years because it is my tendency. I point you to the homebuilders for the object lesson. The news out of that sector is beyond cruddy, I mean, just horrible. Couldn't be worse. And there is not the slightest expectation for their situation to improve for a year dead minimum, being totally optimistic. And the last housing downturn how many homeys went BK? Half of them? We haven't even seen one (of the majors)! But guess what, those stocks are 30 and 40% off their lows, rational or not, the market is clearly looking beyond the current malaise and I'd have to bet that we will not see the lows we saw 45 days or so ago again this cycle. Something to ponder.
rgds,
Well, I’m short Lehman so I disagree.
Yep. The Fed is running out of ammo, and there’s plenty of problems left.
Here’s a wonderful little prezo from the head economist of Freddie Mac:
http://media.mcclatchydc.com/smedia/2008/03/27/14/Hall-Nothaft-032708.source.prod_affiliate.91.pdf
There is nothing in there that is a reason to start being bullish. NB the spreads on jumbo mortgages - it shows what happens in the credit markets when we’re talking of just banks and no GSE’s like Freddie/Fannie.
Now, to that report, add on the $1.1 trillion in HELOC’s that are being frozen (Citi has clamped down on their HELOC’s this week) and you have a terrific amount of credit that is being pulled out of the consumers’ pockets this year.
~~Alan Schwartz, Bear Stearns CEO, March 10, 2008
Shorts weren't banned because they are fundamental to the free market and even the rabid New Dealers realized that. Instead of blaming the free market for this mess, why don't you blame the source of the problem: the Fed and our big spending government? BTW, don't blame me. I voted for Ron Paul.
These guys could be toast by April option expiration. Get another page ready in your “Famous Last Words” scrapbook:
“In a statement Lehman Brothers said: “There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short-sellers of our stock that have an economic self-interest.” “
In this market, if you’re a long, shorts are absolutely your second best friend after Mr. Zimnanke. Without those DJ+300 and DJ+400 days the DJ would be 600-800 points lower, and short-covering is unquestionably directly responsible for a solid half of those pumpola days.
Thanks for you link. There’s a lot of interesting info there.
Can someon explain to me the reason why short selling was ever allowed?
They help stabilize the markets by buying when it drops and covering their short sales. If we had shorts in the actual real estate market it might not bee in such bad shape now.
Another weekend surprise?
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