NEW YORK Shares of Lehman Brothers LEH.N fell
by nearly 10 percent in early New York trading on Thursday on
rumors that the fourth largest U.S. investment bank could see a
run on the bank similar to what happened to Bear Stearns
BSC.N, traders said.
Declines in Lehman's shares on Thursday are "all being tied
to fears of Bear Stearns," said Robert Bolton, head trader for
Mendon Capital Advisors in Rochester, New York. "Does another
broker dealer go the route of Bear Stearns with regard to their
solvency and the like."
A Lehman spokeswoman called the rumors "totally unfounded,"
which contributed to the stock taking back much of its losses.
Kerrie Cohen, a spokeswoman for 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
At midday, Lehman shares were down 4.28 percent at $40.67
on the New York Stock Exchange, after falling as low as $38.36.
The U.K.'s Times reported on March 19 that the U.S.
Securities and Exchange Commission (SEC) was probing whether
hedge funds and other market players deliberately circulated
false rumors about Lehman Brothers to push the company's shares
Investors have been skittish about investment banking
shares since the middle of the month when Bear Stearns Cos Inc
experienced a run on the bank amid fears that its mortgage
exposure could leave it insolvent.
Other traders, who declined to be identified, echoed
Bolton's assessment for the reason behind the drop in Lehman's
shares. In addition, large bearish bets on Lehman in options
markets contributed to selling pressure, some traders said.
Lou Brien, a strategist with DRW Trading Group in Chicago,
said there had been a rumor on Thursday that Lehman was close
to making an announcement, which contributed to the shares
selling off, but the announcement proved to be about the bank
hiring a new co-head of global institutional distribution,
after which shares recovered.
Lehman Brothers a decade ago derived an outsized proportion
of its earnings from the U.S. bond market and has long been an
active player in mortgages, leading some investors to argue the
company could be devastated by the credit crisis. But Lehman's
business is much more diversified than it was in the 1990s, and
the company has not posted any net losses during the credit
Since Bear was forced to announce plans to sell itself to
JPMorgan Chase & Co on March 16, the Federal Reserve has
allowed investment banks to borrow directly from the central
bank, in a move designed to shore up the financial system.
In an e-mailed statement on March 17, Lehman Chief
Executive Dick Fuld said the Fed's creation of a liquidity
facility for primary dealers "from my perspective, takes the
liquidity issue for the entire industry off the table."
Lehman said on March 18 that its holding company has $34
billion of assets it could easily sell, and another $64 billion
of assets it could borrow against. Regulated subsidiaries have
another $99 billion of assets it could borrow against.
(Reporting by Paritosh Bansal and Dan Wilchins, additional
reporting by Doris Frankel in Chicago, Editing by Toni