Bear Stearns (BSC) is gone, so the markets are wondering who's next. The leading contender? Lehman Brothers (LEH).
Lehman's stock dropped 15% on Friday, and it's down another 33% in pre-market trading. Some specific concerns:
Like Bear Stearns, Lehman is relatively small and undiversified.
Like Bear Stearns, Lehman just reiterated that its "liquidity position is strong."
Like Bear Stearns, at least one of Lehman's trading partners is cutting it off: The WSJ reports that Southeast Asia's biggest bank, DBS Holdings, has asked traders not to enter new transactions with Lehman Brothers. "DBS has sent an internal e-mail saying it would not deal with Lehman Brothers from now on."
Like Bear Stearns, Lehman is levered about 30-to-1.
Like Bear Stearns, Lehman chose not to raise additional capital last fall.
Like Bear Stearns, no one has any idea what's really on Lehman's balance sheet (including, probably, Lehman)
Unlike Bear Stearns, says an analyst at ING, Lehman is NOT too big to fail, which means that the Fed might not be in such a panic to bail it out.
If Lehman is hellbent on following the Bear Stearns playbook, it will now trot Dick Fuld out onto CNBC to say that the bank is in great shape. And then, a day or two later, it will go bankrupt.