Lehman Shares are Wasted on Lehman Bankers

Why does Lehman Brothers have shareholders at all?

Yesterday, the venerable investment bank's shares were rocked by rumors that it would be bought at a deep discount to its book value, perhaps by Barclay's. The shares were then buoyed by a Morgan Stanley analyst report that such a deal was unlikely and that the share price could rise up to book value, or about $31. While the market may not be buying the sale rumors -- not today, anyway -- it isn't really buying the analyst report, either, as the shares are still selling for about $22. That's still an eight-year low, and way under book. The negative rumors come less than a month after Lehman demoted some of its top execs.

Meanwhile, Lehman is reportedly paying some of its employees bonuses in advance, and those bonuses are in the form of Lehman shares, an inducement to stick with the firm. Employees are said to own about 30 percent of the firm already.

Actually, though, the fact that Lehman's employees hold only 30 percent of its equity is something of an insult if you think about it. Lehman's market cap is about $12.4 billion. It has about 26,000 employees. So the employees own less than $150,000 in Lehman shares each. Take out the bottom half of the employees (clerical, janitorial, etc.) and the bankers each still hold less than $300,000 in their own company. That's pocket change for most bankers, especially considering that the average condo in Manhattan, where the bulk of Lehman's bankers work and often live, goes for more than a million. Plus, the bankers are already paid partly in shares.

At this level of shareholding, you can't argue that Lehman bankers are particularly incentivized by the share price. Lehman's senior execs could easily buy the whole company, ending their whining about market rumors threatening the franchise. After all, it wasn't long ago when all the big banks on Wall Street were owned this way.