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Trader exodus could compound Lehman’s woes

It’s turning out to be a very, very bad week for Lehman Brothers. The Wall Street Journal predicts it’s about to announce a quarterly loss of more than $300m and will need to raise $3-4bn in new capital following failed hedges. Lots of people have gone very short on its stock. And Standard & Poors has cut its ratings a notch to A+.

The Financial Times’ Alphaville blog points out that the ratings downgrade (which Lehman shares with Merrill and Morgan Stanley) will oblige Lehman to post substantial additional collateral. Coming on top of its other woes, this is not good news for its traders.

“Lehman are definitely going to pull capital out of trading,” says one fixed income headhunter. “High-quality traders will look to a higher-rated platform, but precious few people are hiring so it will be difficult for them to leave.”

But Lehman has its defenders. Dick Bove, an analyst at Ladenburg Thalmann, says the inevitable comparisons with Bear Stearns are misplaced. “Lehman is in a much stronger position than Bear Stearns was in, but the company is being severely tested at the present time.

“The people at Bear didn’t have the same level of capability as the people at Lehman do,” adds Bove. “Lehman is a meritocracy with hands-on leaders. Bear was a gerontocracy.”

Although it’s cutting staff in structured credit, headhunters in London say Lehman is one of the few banks that’s also still hiring – mainly in “capital markets”.

Comments (6)

  1. Lehman is very far from being Bear Stearns. Fuld has rescued this bank from the brink before and will do so again. Do not underestimate him people.

  2. Lehman are making cuts in exactly the same way that Merrill, Citi, and Morgan Stanley are. Their culture is similar to Bear’s – their salespeople are aggressive and very effective. They’re also much higher calibre than Bear’s ever were.

  3. Could not happen to a nicer bunch of people – Structured Credit team in particular…..happy hunting boys……

  4. The Fed stood behind Lehmans because in ’98 Lehmans stood behind the Fed during the LTCM crisis. Bears didn’t and its disloyalty then was reciprocated a decade later. However if the press continue to hound Lehmans as if its some fallen celebrity caught taking coke in the loo then it has a serious chance of becoming a self-fulfilling prophecy. This is not about salivating over the downfall of a once ‘famous’ (and I use the term loosely) page 3 girl. This is about peoples careers and the livelihoods of their families. So Sarah, please have some sense of social responsibility here and leave Lehmans to concentrate on its recovery rather than fighting off rumours and counter rumours.

    Shaun Springer Reply
  5. And no, Lehmns is not and never has been a client.

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