Go private to avoid the short-sighted?

July 14, 2008

stocks.jpgHow do you save an investment bank from rumor mongers? Take it private, one analyst suggests.

Lehman Brothers, the investment bank whose stock has fallen more than 30 percent this month, has been targeted by the fear-trade just as Bear Stearns was earlier this year, Fox-Pitt Kelton analyst David Trone wrote in a research note.

“We continue to believe that the decline in Lehman’s stock has little to do with the company’s liquidity and balance sheet, but is more based on investors’ pricing in the probability of a Bear Stearns-like run-on-the-bank,” Trone wrote.

Bear Stearns, once the fifth-largest U.S. investment bank, faced a run on the bank in March, and was forced to sell itself.

Trone said “an emergency prohibition of short-selling in brokerage shares is imperative,” but in the absence of such a measure going private was the best bet.

“Without a public stock, there would be no shorting, thus no motivation for rumor-mongering, thus no source to spook their counterparties and creditors,” Trone wrote.

(Photo credit: Reuters)

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