Banks, by their nature, are opaque creatures, and investment banks even more so. Even when they have a public listing and aren’t owned by a much larger financial-services entity, it’s almost impossible to tell from outside what’s going on inside them. Thus did analysts expect Lehman Brothers to report second-quarter revenue of $2.62 billion, and a net loss of 22 cents a share; the real numbers are going to be more like negative revenue of $700 million (this is investment banking, of course you can have negative revenue) and a net loss of $5.14 per share.
Even David Einhorn probably wasn’t expecting numbers that bad. But there seems to be a fair few investors still willing to shovel good money into Lehman: the New Jersey Division of Investment, among others, is likely to subscribe to some $6 billion in newly-issued stock.
In the past, buying LEH when it’s traded well below book value has been a way to make some spectacular profits, so you can see where the temptation lies. On the other hand, with the stock destined to open this morning significantly below the $30 level, there’s a definite feeling of slow-motion trainwreck here. Still, at least the slow-motion bit is a good thing: it means that Treasury and the Fed have that much more time to find someone with credibly deep pockets willing to buy the bank outright.