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Lehman Brothers Holdings Inc (LEH) Looks to Raise Capital

Lehman Brothers (LEH:NYSE) is one of the nation’s major investment banks. Lehman was founded in 1850 and has a rich history on Wall Street. However, Lehman’s stock price has been taking a beating this year as analysts paint it with the same brush they used on Bear Stearns. There are rumors floating around Wall Street nearly every day about Lehman rapidly running out of liquidity, and the fact that Lehman needs to go to the Federal Reserve’s discount borrowing window on a regular basis.

All investment banks, including Lehman, are built on two items – liquidity and trust. When either of these items is lost, investment banks cease to exist and the best that can be hoped for is a situation like Bear Stearns-an arranged takeover by a stronger firm. Lehman’s efforts to raise fresh capital have caused the markets to fear that Lehman is going down the same path Bear Stearns did. According to the Wall Street Journal, Lehman Brothers is attempting to raise $3-$4 billion before its quarterly report in mid-June to help offset the losses from the credit markets in the current quarter. This capital raising would be in addition to the $4 billion that Lehman already raised earlier in the year.

These capital raising efforts may actually be good news for Lehman Brothers, if successful. If they are able to raise additional capital, it would be a show of confidence in Lehman. It would show that major financial institutions and investors have confidence that Lehman is viable and will be able to stay in business for the foreseeable future. Bear Stearns was able to raise only a small amount of additional capital from major investors, so they, in effect, failed, and their remaining assets were bought by JP Morgan(JPM). Bear Stearns was just never able to gain the confidence of major investors. Lehman seems to be on its way to doing so and the stock price has rebounded smartly in the past few days.

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