Lehman Brothers Pre-Announces Colossal Loss

Posted by Patrick O'Connor on 6/9/08 11:26 am

Lehman Brothers today announced that it is expecting a $2.8 billion second-quarter loss, an amount greater than its earnings during the previous 8 years combined.  During the past few trading days, Lehman was known to have been trying to raise capital, but the fourth largest brokerage in the U.S. insisted everything was fine.  Nonetheless, shareholders were getting nervous.  First, rumors suggested Lehman would raise about $4 billion, then it was as much as $5 billion, and today it turned out to be $6 billion.  Lehman’s stock price has dropped roughly 36% since May 16--about 17% of that has been realized since June 5.

The good news is Lehman learned from the Bear Stearns failure and raised capital before its stock could suffer the kind of losses Bear experienced.

Still, the financial sector is under a great deal of stress as investors come to grips with the reality that massive write-downs and losses in the group are far from over.  The UltraShort Financial ProShares ETF (SKF) has surged a whopping 15% since Thursday’s close.

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