http://www.nyse.com/interface/jsp/...ON%2009/11%20927&isdowjones=trueLehman Pfds Enjoy Fortune Reversal On Bank of America News
11 Sep 08 17:31
By Maxwell Murphy
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Investors in Lehman Brothers Holdings Inc.'s (LEH) preferred stock finally got some preferential Wall Street treatment.
Lehman's common stock was little changed Thursday by The Wall Street Journal report, shortly before markets closed, that Bank of America Corp. (BAC) may buy the woebegone, 158-year-old Lehman. And the common shares actually moved nominally lower in recent after-hours trading.
Its preferred shares, on the other hand, staged a staggering rebound in the minutes before Thursday's closing bell. Issues that were earlier down 29% to 39% finished up between 11% and 33%, and the ones that couldn't breach positive territory were down just a fraction of what they had been earlier in the session.
The reversal pushed the preferreds' respective dividend yields below 23%. Though that indicates the continuance of their dividends remains a major cause for concern following Lehman's drastic cut to the common payout announced Wednesday, it's a far cry from the 35% some yielded earlier Thursday. Lehman can only touch the preferred dole once it's eliminated the common dividend entirely.
Six of 10 preferred series had advanced as of market close, and even the worst performer was off just 9%, according to FactSet Research. For most of the day, the preferreds had traded at or close to the roughly 42% drubbing endured by Lehman common shares.
This makes sense if Wall Street is now banking on Lehman to follow the same path as Bear Stearns. Should Bank of America, with or without government help, move in on Lehman the same way JPMorgan Chase & Co. (JPM) took over Bear, there's no telling how little common shareholders might receive. On the other hand, JPMorgan assumed Bear's preferreds and the ones it didn't buy out now trade much closer to par, netting big gains for those who bought Bear preferreds on the cheap.
Lehman preferreds now fetch between about 26% and about 40% of par, which could make them an extremely lucrative investment, both growth and income, if an institution with Bank of America's financial fortitude steps up to back them.
If Bank of America does step in to buy Lehman out of its troubles, this would mark the second time this year it stepped in to save a doomed financial institution, following the acquisition of failed mortgage lender Countrywide Financial earlier this summer.
-By Maxwell Murphy; Dow Jones Newswires; 201-938-5173; maxwell.murphy@ dowjones.com