Greenlight expects more Lehman write-downs

Analysis

Lehman Brothers Holdings Corp, largely unscathed by the mortgage meltdown this year, faces losses well beyond what the market is expecting, activist hedge fund manager David Einhorn told Reuters on Monday.

Einhorn, president of $5.5 billion Greenlight Capital Inc, noted Lehman has not recorded significant mortgage losses this year despite its standing as one of the biggest underwriters and traders of mortgages. He spoke at the Reuters Investment Outlook 2008 Summit in New York. But the New York money manager is shorting Lehman’s stock, which means he will profit if the shares decline.

Einhorn argues that because of the kinds of assets on Lehman’s balance sheet, the No. 4 US investment bank ought to have more write-downs when reporting Q4 results this week. „My view of Lehman has been that they’ve sort of suggested that they don’t have problems,” Einhorn said. „But when you look at their balance sheet, their mortgage assets, not just counting Level 3, are over $80 billion against only a $17 billion intangible capital base. That’s before their other exposures, suggesting that there may be problems there,” he said. 

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