Ask Money

Trading in Lehman

Chris Farrell Dec 12, 2008

Question: So, I’m confused as to why people are still buying and selling Lehman Brothers stock. They’re bankrupt, why are people trading it, the stock reached as high as 30 cents after filing for chapter 11 protection. Why do their quotes online indicate a dividend (of nearly ten times the share price), why, why, why? I’ll gladly buy you guys a round lot of Lehman brothers for an answer. Corwin, Cleveland, OH

Answer: Gee, thanks, Lehman Brothers wallpaper. I think not.

The stock closed at $0.04 today, and year-to-date its performance is -99.9%. It fell from a high of over $84 a share in January 2007 to pennies today. Take a look at this chart, courtesy of Marketwatch:

The Lehman bankruptcy in September–the largest in U.S. history–shook the global capital markets this year. According to news stories at the time, it had $639 billion in assets and $613 billion in liabilities. It’s a complicated bankruptcy, and the firm is being dismembered in pieces.

The dividend information you see refkects the last dividend payment by Lehman for the third quarter of 2008, and paid toward the end of August.

By the way, thanks to Emily Brandon’s blog at U.S. News & World Report, I see that the Pension Benefit Guarantee Corp. the government agency that insures private-sector pensions, filed today to take over Lehman’s pension plan. The pension covers more than 26,500 employees and retirees, and it’s 95% funded. If there is a shortfall the PBGC will make good on it. In its statement the PBGC said:

The pension insurer’s move comes ahead of a Dec. 22 bankruptcy court hearing on the sale of Lehman subsidiaries that make up the firm’s investment management business. The agency acted to end Lehman’s pension plan prior to the sale so that the subsidiaries being sold remain liable for the pension plan’s unfunded benefit liabilities…. The PBGC acted to end Lehman’s plan because it stands to be abandoned following the liquidation of substantially all the firm’s assets, and the increased financial risk to the PBGC if the subsidiaries involved in the current sale exit the controlled group and escape liability for the pension plan….

You’re right. Shareholders have been wiped out. There’s no value left in the equity. The company’s stock no longer trades on the New York Stock Exchange. The PBGC is taking over the pension.

But we’ve seen this trading in bankrupt companies over and over again. Shareholders are out of luck, yet the stock trades as a “penny stock.” A penny stock is essentially funny money for speculators and unwary investors. Buying penny stocks is not an investment. It isn’t a sensible speculation. It’s a mystery to me why anyone would buy a penny stock.

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