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"Forensic" Analysis of Lehman Problems Points to Countrywide-Type Disaster (pdf)
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This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 1 year 93 days ago (researchrecap.com). Views: 123
Tags: lehman credit crisis housing bubble banks |
| Related Tags: economics stock market wall street gold inflation peter schiff recession |
PDF content pasted below for those who prefer html:
By this time, most of us are aware of the sweeping
damages caused by the collapse of Countrywide Financial
Corporation (CFC). In fact, problems were apparent as far
back as October 24, 2006, when Countrywide announced a
layoff of 2,500 employees due to struggles with subprime
debt. At the same time, Countrywide informed the public it
would repurchase $2.5 billion of the Company’s stock, or
approximately one-eighth of the shares outstanding. The
stock was trading in the high $30’s. Three days after the
announced repurchase, top directors, officers and
employees began a massive insider sell-off (see Table 1
below), and the corporate DNA of a shareholder murderer
was revealed. The combination of weakening operations
with share repurchases and insider selling is a real killer.
From the original announcement on October 24, 2006, the
stock reached a high of the low $40’s in January, 2007, and
from there continued to plummet until it reached a low of $4.25
in June of 2008 and was put out of its misery by the Bank of
America takeover.
Throughout this period, even while bad news
continued to mount, senior management was extolling the
virtues of the Company. They were so good at weaving their
story, that employees were persuaded to hold their stock even
as management sold (see Table).
Of course, as the charade continued, numerous “value
investors” remained convinced that the stock was a great value
and that all would get better. I strongly suggest the contrary.
When three genetic markers – repurchases; insider selling; and
weak operating results – show their ugly heads, things can only
get worse.
Another living example of the DNA phenomenon is
Lehman Bros. (LEH). The first of the three deadly genes
started to become noticeable in the summer of 2006, as
Receivables began to accelerate at a rapid pace – the first
indication of the mortgage mess that was to follow. On
February 1, 2007, Lehman announced a repurchase of
100,000,000 shares, which represented one-fifth of all shares
outstanding. The stock price was hovering in the low $80’s.
Within less than three months, key management began
unloading over 60,000,000 shares.
Not unlike Countrywide, Lehman continued to slide
following the announced repurchase. Within one year, Lehman
was struggling for its very existence, raising capital at every
turn and liquidating assets to meet capital needs. This
deterioration continues. Shareholders hold stock that has
declined 80% while the top insiders walked away with their
winnings.
Forensic analysis is an important tool in detecting
crime. Luckily, in the investment arena DNA evidence can be
read and acted upon before the murder is committed. Each of
these three “genes” – deteriorating operations, insider selling,
and repurchases – may be harmless by itself, but in
combination, they are deadly. Investors are well-advised to be
alert to these signals and avoid becoming victims.
View Original Article
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