For some Lehman debt holders, pennies on the dollar

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With the demise of Lehman Bros. Holdings Inc., investors can see just how devastating the wipeout of a major financial company can be -- at least when government largess isn’t there to protect equity or debt holders.

In a bankruptcy, common-stock holders usually can expect to lose everything, and the market signaled that today with Lehman: Its shares closed at 21 cents, down from $3.65 on Friday.

The more surprised investors may be the company’s debt holders. Owners of Lehman’s subordinated bonds and preferred stock may get back very small sums or nothing at all, and owners of the company’s higher-rated bonds may get as little as 60 cents on the dollar, Bloomberg News estimated.

The price of Lehman’s senior unsecured bonds fell as low as 30 cents on the dollar today, and its subordinated notes traded for as little as 3.5 cents.

Lehman’s Chapter 11 bankruptcy filing was by far the biggest in U.S. history: With $613 billion owed to creditors, the case dwarfs the $41 billion that WorldCom Inc. owed when it filed for bankruptcy protection in 2002, Bloomberg noted.

Lehman listed $639 billion in assets. But they were valued as of the end of May, and so their worth today is suspect.

Wells Fargo & Co. disclosed after the market closed that it owned Lehman senior unsecured notes and preferred stock originally worth $90 million and $109 million, respectively. The company said the notes now are trading at 25 to 30 cents on the dollar, and the preferred issue was trading for less than 1% of par value.

Wells said it would take a third-quarter charge to earnings to reflect its losses. Its shares fell $3.29, or 9.6%, to $31 before the announcement, amid a vicious sell-off in the stock market overall.

Of course, Wells is just one of many companies, here and abroad, that will have to go to the confessional on Lehman securities.