Lehman Brothers, Goldman Sachs Odds Get Shorter

The next bank to go under?  Oddsmakers have shortened Lehman Brothers down to 7/4 odds ($7 paid out to every $4 bet).  Goldman Sachs remained at 3/1 odds ($3 paid out for every $1 bet).

These odds - courtesy of Bodog Life came out immediately following news that Lehman Brothers had better-than-expected earnings and repeated assurances of financial strength.

Lehman's shares lost more than a fifth of their value last week and were down another 2.6% recently in post-market trading after the announcement. Options traders placed heavy bets last week that the declines would continue.

On Monday, Lehman said Monday it will try to sell up to 3.45 million shares of convertible preferred stock. The aim is to raise funds now while delaying the pain for current shareholders, whose holdings will be diluted when the preferred stock converts into common stock at a later date.

Lehman Chief Financial Officer Erin Callan acknowledged the difficult market conditions in a release Monday. The bank will use the funds to reduce borrowings and bolster its capital base, she said.

"Given the challenging environment and our previously stated view that it will likely continue the balance of the year, issuing convertible preferred is appropriate as it optimizes our funding and accelerates our plan to reduce leverage, and at the same time minimizes dilution to our shareholders," Ms. Callan said.

She added: "We also felt this was the right time, as there was a window of opportunity in the market as we have received significant interest from several key institutional investors who have been strong supporters of the firm over time."

The firm also claimed this weekend to have been defrauded of more than $355 million in transactions that it suspects were carried out by two employees at the Japanese trading house Marubeni, and will sue to recoup the money, Lehman officials said Sunday.

Lehman provided the money to a unit of LTT Bio-Pharma, according to company officials who spoke on condition of anonymity, citing the sensitivity of the case.

Matthew Russell, a senior spokesman for Lehman Brothers, said that Marubeni secured the loans and should repay them. The company's Japanese unit, Lehman Brothers Japan, will file a civil suit as early as Monday at the Tokyo District Court, Russell said.

Lehman said Saturday, "Lehman Brothers Japan Inc. today confirmed that it is working closely with the authorities to seek full recovery of funds it believes to have been fraudulently misappropriated from transactions in which an affiliate provided financing."

The fraud may have been carried about against other financial institutions as well, said the person, who asked not to be identified because of a lack of authority to speak to the news media.

----

Jagajeet Chiba, Gambling911.com

Originally published March 31, 2008 7:15 pm EST