Lehman Brothers Q2 losses stun Wall Street - Big cash call looms

Lehman exposed it's problems and expected losses in Q2 - the quarter ending May 31sts of US $2.8 billion, or US $5.14 a share (Q1 they showed a "profit" of US$489 million ). . On top of this they are making a cash call to fill up the holes on the Balance Sheet of US $6 billion -- $2 billion more than the word on the Street before the announcement. Reuters reports that Lehman blamed the projected loss on $3.7 billion of write-downs from trades and hedges gone sour....which ..er..is what they are supposed to do for a living.

Lehman are in deep shit and more shareholders headed for the exit. The stock closed at US$ 29.48 down US$2.81 a drop of -8.70% (it had been down 13% earlier) -- a five-year low.

Rating Agencies have shaved Lehman's rating which will hit their margins - Fitch this morning cut Lehman's long-term issuer default rating one notch to "A-plus," the fifth-highest investment grade, from "AA-minus" and cut Lehman's short-term issuer default rating one notch to "F1," the second-highest rating, from "F1-plus."The outlook is negative, indicating an additional rating cut is more likely over the next one to two years.

This follows S&P who cut Lehman's long term rating to "A," the sixth-highest investment grade, from "A-plus," on June 2nd. Moody's Have however affirmed Lehman's senior debt rating at "A1," the fifth-highest investment grade, but changed the outlook to negative, from stable.

Lehman CEO Richard Fuld Jr.said it cut its exposure to risky residential and commercial mortgages by as much as 20% in the quarter. They had also sharply boosted liquidity -- to US $45 billion from US $34 billion at the end of the first quarter.

Lehman will (?) raise US $4 billion by selling 143 million shares of common stock at US$28 each, increasing shares in issue by 26%. It’s also selling $2 billion of preferred shares that will pay an 8.75% annual dividend yield.

Now that Bear Stearns has been folded into a larger entity stifling all the bad news, the market has turned to the next smallest bank - Lehman Bros. The Vulture funds will be moving silently, sniffing their prey.