Monday, September 21, 2009

What Is Going on with Lehman Brothers?

Not with the company but the stock price.

Lehman Brothers still trades as a pink sheet, LEHMQ. The company has been in bankruptcy (Chapter 11) since last September. The stock, accordingly, was trading at 5 cents or less, with daily volume of a few million shares, until all of a sudden it went up 200% to 15 cents on August 28 with 73 million shares trading.

It is trading at 23 cents today, up 12%. It was up more than 20% earlier.

The move since late August is dismissed as nothing more than small, retail investors picking out the penny stocks hoping to win big to make up for the loss they have sustained in their investment.

Probably that is the case. However, I have this strange feeling that the firm may get resurrected. I have absolutely no proof, it's just my slight suspicion, probably irrational one, too.

If I am to plead my case for the Lehman resurrection, it is this recent post about two accountants discussing the unwinding of the unwindable derivative positions in Lehman Brothers London operation.

No major counterparty has come forward to settle their accounts with Lehman, after one year. Why? Maybe because their claims are not supported enough by documentation that would satisfy the bankruptcy judge? Instead of unwinding the positions so that the firm can be dissolved, might they end up keeping the firm intact with all remaining positions on its book, so that the counterparties are not harmed by the unwinding (if they owe Lehman)?

They may rather let Lehman Brothers exist as a "bad bank" that holds derivatives that have certain value but no one can figure out exactly what value and are unwindable. After all, Chapter 11 bankruptcy is for reorganization under the bankruptcy code.


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