How Low Can Lehman Go?

By now you know that concerns about Freddieand Fannie dragged down stocks but perhaps no firm was more badly injured than Lehman.

That’s due in part to the large number of mortgages that Lehman underwrites, in much the same way as Freddie and Fannie. According to Bloomberg investors fear they’ll get left holding the bag “if those two go down and Lehman still owns a lot of those securities.”

Lehman Brothers, the nation's fourth-largest investment bank, is seen by many analysts to be the weakest of Wall Street's biggest firms. Concerns emerged about Lehman's liquidity and leverage last month after the investment bank reported an unexpected $3 billion loss for the second quarter.

“You can look at Lehman and think wow it’s really cheap but you don’t know that for sure. It’s just a tough time to step into financials,” says Sandler O'Neill analyst Jeff Harte on Fast Money.

The investment bank was also hurt by rumors that some of its biggest trading partners were scaling back their business. Several firms quickly denied the speculation, with bond fund Pacific Investment Management Co. and hedge fund SAC Capital Advisors LLC both issuing statements that they continue to do business with Lehman

There is at least one bright spot for the firm. Standard & Poor's said Friday that Lehman continues to earn its credit risk rating of “A” meaning the company can meet its financial obligations.

Perhaps Jeff Harte sums it up best. “I think if you buy Lehman you’ll be happy two years from now. Two months from now, I'm not so sure.”

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Trader disclosure: On July 11, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (INTC), (USO), (WMT), (MSFT); Najarian Owns (AAPL), (CHK), (TSO), (XLF); Najarian Owns (FNM) And (FNM) Puts; Najarian Owns (LEH) And (LEH) Puts; Najarian Owns (RIMM) Calls, (SLB) Calls, (YHOO) Calls, (CSCO) Calls; Finerman Owns (GS); Finerman's Firm And Finerman Own (PDE); Finerman's Firm Owns (MSFT), (SUN), (TSO), (VLO), (GE), (MO); Finerman's Firm Is Long SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Is Short (BIG), (RTH), (IJR), (MDY), (SPY), (IWM); Finerman's Firm Owns (TGT) Calls; GE Is The Parent Company Of CNBC

Sandler O'Neill Advised clients in deals involving (BAC) and (JPM): Sandler O'Neill Recvd. Inv. Bank. Comp. From (BAC), (C), Past 12 Mos.; Sandler O'Neill Expects To Receive or SeekInv. Bank. Comp. From (BAC), (JPM), (C) In Next 3 Mos.; p(BAC), (C), (JPM), (MER), (MS), (LEH) Are Clients Of Sandler O'Neill ; Sandler O'Neill Was A Manager Or Co-Manager of A Public Offering for (C), (JPM) In Past 12 Mos.; Sandler O'Neill Has Received Non-Inv. Bank. Comp. from (C), (JPM), (MER), (LEH), (BAC); (GS) Is A Non-Inv. Bank. Client Of Sandler O'Neill