Meredith Whitney on Lehman

This is from Meredith Whitney note at Openheimer. Thanks goes to Nathan. Remember she is the one I put a link for when she spoke on CNBC. A rare independent thinker in the sell side world. She brings up an important point I have heard her mention before and that is the huge need going forward for all these firms to raise capital which is extremely dilutive. The other thing she correctly points out was that last quarter was supposed to be the kitchen sink quarter. That is what you heard from most everyone. It wasn't and now all of a sudden it is supposed to be this quarter. You hear it from the talking heads all over again. At some point they will be right and everyone will feel good about themselves patting each other on the back thinking they are market geniuses forgetting that they only got it right 9 months and 50% later.

Lehman announced after the close that it would raise $3 billion in convertible securities, or 14% dilutive capital. While we believe this to be a necessary evil for Lehman Brothers, we believe it will mark only one of many significant capital fund raises for financial institutions over the course of 2008. We note, last week, the regulators advised Fannie Mae and Freddie Mac to raise at lease $20 billion in additional capital.

and

As we wrote last week, capital ratios will be of primary focus for financial institutions during the next month of bank 1Q08 reporting. Lehman took the advice it has been giving to its clients for over the past five months in going to the markets well ahead of what it believes to be a barn rush of capital raising throughout the remainder of the year. Thus, while this capital raise is expensive on a near term historical basis, LEH and we believe it will only get progressively more expensive to raise capital as the year evolves. As a result, we continue to be negative on financials as we believe the existing equity investors in financial shares will be consistently holding the "short stick"throughout the remainder of the year.