Lehman: Read Between the Lines
March 18, 2008 7:47 am
In the earnings news today, Lehman (LEH) Reports Q1 (Feb) earnings of $0.81 per share, $0.09 better than the First Call consensus of $0.72; revenues fell 30.5% year/year to $3.51 bln vs the $3.35 bln consensus. What is meant by the word certain?
LEH says liquidity pool of $34 bln and unencumbered assets of $64 bln, with an additional $99 bln at regulated entities, at quarter end. Net revenues for the first quarter of fiscal 2008 reflect negative mark to market adjustments of $1.8 bln, net of gains on certain risk mitigation strategies and certain debt liabilities.
Now for the bad news:
The Firm’s pre-tax margin was 18.9% for the first quarter of fiscal 2008, compared to 33.7% for the first quarter of fiscal 2007.
Shareholders are not going to be happy with this:
Return on average common equity was 8.6% for the first quarter of fiscal 2008, compared to 24.4% for the first quarter of fiscal 2007.
Still looking rough:
Return on average tangible common equity was 10.6% for the first quarter of fiscal 2008, compared with 29.9% for the first quarter of fiscal 2007.
That is a relief. So, if we calculate the value based on current accounting principals, the stock should be a buyout candidate close to… $3, $4 or maybe $50?:
Book value per common share was $39.45.
The point is that do we really think that any of this matters right now? I can’t make heads or tails of it, can you?
Disclosure: Clients of Horowitz & Company do not hold positions mentioned as of the date of publish.