Lehman Brothers (LEH) shares rose 3 percent today even as analysts at Banc of America Securities slashed their earnings estimates and warned that the share price is not in-line with current risk levels.

Sound familiar?

After rival Bear Stearns’ (BSC) bombshell, analysts, like everyone else, are understandably gun-shy these days. Worried that further asset write-downs and poor hedging models are significant pressures on the bank, J.P. Morgan analysts Kenneth Worthington cut Lehman’s estimated earnings by an astounding $0.46 to 18 cents a share.

That’s gotta hurt.

Not to mention, a respected hedge fund manager recently called into question certain items in the company’s first-quarter earnings release. Even though the shares rose to $37.20 today, they are down considerably from the beginning of the month ($44.24) and year ($65.44).

LEH: Down for the Count?

Unlike John Dessauer, editor of Investor’s World, I’m not a big believer in big lending institutions. Some of Dessauer’s  positions include Wachovia (WB), Citigroup (C) and even embattled home lender Countrywide Financial (CFC). He believes that big banks with rebound in the long term due to the falling dollar. OK, they might. But for now, I’m leaving shares of big lenders like LEH well enough alone.

Here are 3 reasons why:

#1: Overexposed Balance Sheet. B of A’s analysts Michael Hecht and Scott Buck recently noted:

“Slowing economic growth and still large balance sheet exposure to residential and commercial mortgages and hung bridges suggest a lackluster, low-visibility environment for the large I-banks through ’08.” 

They also slashed estimates on Goldman Sachs (GS) and Morgan Stanley (MS).

#2: Overestimated Book Value. Hecht and Buck also believe that book value could be as much as 20 percent lower than what their balance sheets show. In other words, don’t think you’re getting a bargain at today’s prices using historical p/bv ratios.

#3: Overabundance of Debt Obligations. Noted hedge fund manager David Einhorn also casts a weary eye on Lehman’s Q1 earnings, which include a markup between $400 million and $600 million on an Indian-based energy company, and only a minor $200 million charge to mark down its collateralized debt obligation holdings. Einhorn believes this wasn’t enough, given Lehman holds $6.5 billion of these securities and about 25 percent of them hold what is considered to be “junk.”

Analysts across the board also believe that weaker trading volume and banking activity, coupled with losses from bad hedge positions and reversals of market-to-market positions from last quarter, will further hurt earnings.

This, fellow Rational Investors, is why I’m “over” Lehman Brothers!

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