Will this be enough to quash rumors and keep employees from heading for the exits? On Wednesday, news broke that Lehman Brothers
The market appeared to reward the decision, sending shares up almost 7% yesterday -- a welcome partial retracement of Monday's 11% drop, following rumors that Lehman would be acquired for $15 per share by British bank Barclays
Rewarding the troops
Internally, the awards will give shellshocked troops something to smile about. Employees reportedly requested them in order to take advantage of a depressed share price. (Lehman shares are off by nearly two-thirds so far this year!) Lehman's employees already own approximately 30% of the company.
This is a shrewd tactical move on CEO Dick Fuld's part -- a display of confidence that helps dispel the notion that Lehman could share the same fate as Bear Stearns, now part of JPMorgan Chase
Who pays for the employees' presents?
But who foots the bill? According to The Wall Street Journal, the awards won't dilute existing shareholders, because Lehman has already accounted for the shares. Left unmentioned are the share buybacks Lehman does to offset dilution. Over the last five fiscal years, Lehman's share repurchases gobbled up 70% of its net income, even though the number of diluted shares outstanding still increased 9%!
(For reference, the same figures for Goldman Sachs
I've long thought that investment banks are run for the benefit of their employees first and their shareholders second. That's a good reason to require a high margin of safety when investing in them. Lehman might look like it fits the bill on that count, but, personally, I'll be standing safely on the sidelines of this game (as an avid spectator). For those with an interest in broker-dealers, I'd turn my attention to Merrill Lynch
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