Lehman Brothers basically done today

LEH selling pressure overwhelming

(1) UPDATE (5:05pm CST): Word early this morning on another site, Naked Capitalism, was that Goldman Sachs could buy Lehman. I didn't think Goldman would be a player but I think can be if the Fed backstops their debt. However, at this point, I don't see that happening. Notice the words I use: "at this point."

Below is the post that hit the Naked Capitalism blog:

I heard this rumor from two sources, that Lehman is in its final day or two and Goldman is willing to buy the firm, and the second source, who volunteered the information, is sufficiently well plugged in that I trust the reading. This came from a former senior employee:

A couple friends of mine from LEH trading desk called me this a.m. to say that mgmt has taken employees aside to let them know that the end should come in next 24-48 hours. Ratings agencies apparently told them that the steps were not sufficient to prevent a d/g, and LEH mgmt asked them to hold off for a day or so to give them a chance to resolve situation (with sale of company). Apparently GS is willing buyer, but is buyer of last resort from LEH's perspective, b/c they would keep very few LEH employees.

If Goldman were to step in then they would probably wait until the stock price hits a buck, if it does. Then buy the firm for about $650 million. No need to spend $3 billion right now with all the toxic debt on the books. GS has their own problems with Level 3 and mortgage-backed securities.

(2) My current thoughts
The stock was down 40% today to $4.22. At this level, the market cap of the firm sits at about $3 billion.

I think thats still too much for anyone to move in and purchase up the firm ala a "white knight takeover."

To the best of my recollection, Bear closed shop at about a market cap of $250 million.

Its over for Lehman for at least three current reasons:

1) The dwindling share price is basically crushing any little leverage the firm might otherwise have in doing deals.
Lehman stock price

2) Counterparties and clients are getting nervous. So much of Wall Street is a confidence game.
Lehman's clients moving to protect themselves
Lehman struggles to shore up confidence

3) Moody's and/or S&P will step in shortly to finish off the firm.
Lehman Pushed to Fire-Sale After Moody's Warning, Share Decline

UPDATE (9:30am CST): Merrill Lynch analyst Guy Moszkowski has officially placed a "no opinion" on the stock as many other analysts are doing the same..

(3) Moody's: Ratings downgrade possible

From Reuters: Moody's Investors Service says that Lehman will have to complete a transaction such as a sale of a majority stake in the firm, or the entire company to avoid a ratings downgrade. In fact, they also stated that the bank will also need to take further action beyond the steps it announced on Wednesday to avoid a ratings cut.

Moody's said it would have downgraded Lehman's debt rating earlier on Wednesday, likely to the "triple-B" category, if it did not think a transaction was possible. Any deal would have to calm markets to preserve the ratings, the agency added.

Raising capital alone would also not preserve Lehman's rating, now "A2," as the firm suffers a crisis of confidence, Moody's said.

"Capital is one element but obviously confidence is a key element," said Bob Young, a team managing director at Moody's.

The rating agency on Wednesday put Lehman's ratings under review with the direction uncertain, citing the fluidity of the company's situation.

When it rains it pours. And keep in mind that when one rating agency downgrades the other usually does the same in a rather quick fashion.

Looks like #1 in my initial thoughts write-up is about to come true. Time is not Lehman's friend.

Sad day on Wall Street.