Trader exodus could compound Lehman's woes

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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".

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