Lehman Brothers Getting Ugly

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At the end of last week we saw something of a bear run at Lehman Brothers, with traders pushing the stock down 6.2% on Friday. Options traders bought heavily in out of the money puts, including some heavy buying in some really far out of the money options that bet the stock will drop at least another ten dollars.
This morning both Bank of America and Sanford Berstein slashed their earnings estimates for Lehman. Many investors now expect Lehman to post a loss for the quarter. The price of default protection on Lehman debt blew out to 246 basis points.
Some are now saying that Lehman will have to engage in another round of capital raising to shore up its balance sheet and reassure investors that it won't face a liquidity crisis. At the more extreme end of the bearish outlook, some are saying that Lehman might already be talking to the Federal Reserve about emergency measures.
"With the sinking dollar, my bet is that these guys are already talking to the Fed in a similar bailout that was fashioned for Bear Stearns," an anonymous market watcher tells Christopher Cruden, the founder of Swiss hedge fund Insch Capital Management.
That's some pretty wild speculation coming from a totally unknown source. But these are wild times, and unknown sources have made some pretty spectacular and spectacularly right calls in recent months. We just thought we'd pass it along.

Update:
A spokesman for Lehman categorically denied the wild speculation.

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