Lehman Demotions

Lehman Brothers(LEH) has demoted Chief Operating Officer Joseph Gregory and Chief Financial Officer Erin Callan.Ms.Callan's demotion has drawn mixed reactions.William Smith of William Smith Asset Management was bitterly critical of her.Everything Ms.Callan said for the past six months has proven to be false,he alleged.They recently sold their shares of Lehman because they lost confidence.They are not buying them back,either.On the other hand,Jon Najarian of Option Monster.com said he didn't think Ms.Callan was treated fairly.She seemed to him very honest and forthright.She really believed what she was saying.Some think Lehman Brothers cannot survive as an independent entity,now that the subprime crisis has changed the investment banking landscape.As for Ms.Callan,she has reportedly left the firm and is taking the summer off,only having served as CFO for six months.

Lehman's Outcome

Lehman Brothers(LEH) is similar to Bear Stearns(BSC),but has a more diversified business.Erin Callan,Chief Financial Officer,said the dealer's outcome for the first quarter was pretty good.Lehman's earnings were better than expected.The Fed's discount window is a great opportunity for them.The equities markets remain weak.We have a lot of confidence to build back into the system.She wouldn't expect it to feel stable until 2009.There's been a sea change.The question of Lehman's liquidity is now off the table.The much bigger question is what's the best way to run this business model.She was shocked by the Bear Stearns takeout.It was a very bold move by the Federal Reserve,and exactly what was needed to stabilize the environment.It has been very difficult to access unsecured funding for the past three months.For the rest of the year,there will be very little access to it ,if any.Liquidity is only one part of the story.The balance sheet is also important.Ms.Callan expects volatility through the second quarter.Lehman Brothers has been upgraded to a buy rating by Goldman Sachs(GS).