Lehman leads way in 'lottery ticket' rally

Almost a year after it filed for bankruptcy, the value of Lehman Brothers shares has soared amid a surge in trading activity.

Other bankrupt groups - where the value of shares is usually close to zero because equity investors are compensated only after all creditors have been repaid - have also seen a frenzy of trading.

"People lost so much money last year and they are so desperate to recoup their losses that they are willing to invest in anything," said Brad Golding, portfolio manager of CRC Financials Opportunity hedge fund in the Cayman Islands.

"Everyone wants a lottery ticket."

After Lehman collapsed, Barclays Bank

and Nomura bought parts of its business. That left a holding company largely containing toxic mortgage assets and derivatives potentially amounting to billions of dollars that are still being unwound.

Lehman peaked last week at 32 cents, having spent much of the year at less than 5 cents.

When the rally in Lehman began in late August, volume soared above 100m shares on one day, compared with virtually no activity earlier in the year.

Lehman closed last week at 14 cents with volumes on Friday reaching just over 11m shares.

Shares in Washington Mutual and IndyMac, two other bankrupt financial institutions, have also risen sharply.

Traders say Lehman and WaMu have more debt than cash, meaning they have no equity value and buying their shares is a forlorn cause.

"It is tulip mania," Mr Golding said.

"People have decided [a stock] is worth something based on nothing. The facts are quite the contrary."

Trading in the delisted stocks of companies that have filed for bankruptcy takes place in private, over-the-counter deals rather than on a registered exchange.

More often than not, a sharp rise in the price of a bankrupt group reflects speculation on the recovery value prospects.

The rally in Lehman has followed explosive rises in the share price of Fannie Mae and Freddie Mac, the mortgage groups taken over by the US government last year.

Shares in AIG and to a lesser extent Citi, companies with significant US government ownership, have also risen sharply.

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