Lehman's Day of Reckoning

Lehman Brothers' shares fell more than 9 percent after the bank announced it would have to raise $6 billion in capital and post a big $2.8 billion during the first quarter.

It's mostly bad news.

Yves Smith of the Naked Capitalism.com blog points out that's 10 times expected losses of around $300 million.

Fitch cut Lehman's credit rating on the company, following Standard & Poor's last week. Moody's changed its outlook on the company to "negative" from "stable."

Short seller David Einhorn of Greenlight Capital, who's been battling with Lehman management lately over his bearish view of Lehman's accounting, looks vindicated. Shares of Greenlight Re are up 14 percent in the past month, while Lehman's are off around 27 percent, according to MarketWatch.

Live-blogging of Lehman's conference call is here, via the WSJ's MarketBeat blog.

Meanwhile, former Lehman CFO turned Bernstein analyst Brad Hintz looks a bit too optimistic in his analysis of Lehman's prospects in a BusinessWeek interview last week, though he did warn clients on Thursday that Lehman's customers were getting nervous about credit risk in its unregulated derivatives unit.

Henry Blodget at TechTicker makes the call for Lehman CEO Dick Fuld to step down.

A lot depends on whether you believe Fuld will be able to right the ship. Citigroup's Prashant Bhatia sees the drop as an "extremely attractive entry point" for Lehman shares and makes the case that thanks to backstopping of the big banks by the Federal Reserve and the latest lowering of exposure to risky assets, Lehman's return on equity should be 50 percent higher than the stock is currently discounting. He sees shares recovering to 50 from below 30 today.

Bottom line: Worries remain that Lehman is still the most exposed of the big banks to commercial real estate and mortgage-rela ted assets, but so far the firm has been able to reduce its leverage a nd find some willing investors. Still, Lehman's optimistic statements that the worst of the credit crunch was behind the banking sector look naive, at best .