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Not much left of Lehman Bros.

Francesca R

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Francesca R
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http://uk.reuters.com/article/businessNews/idUKLA17129220080910?sp=true

Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) said it plans to sell a majority stake in its investment management division and spin off commercial real estate assets as the struggling U.S. investment bank fights to raise capital.
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It is not clear who will buy these divisions or what price the bank will get.

leh.gif
 
The stuff announced two days ago is already history as it appeared to get voted down by markets (the shares went to almost $4).

As of now it is more likely that Lehman will have to be taken over lock, stock and fixed-income trading desk, and Bank of America is the only available buyer. Probably the CEO (Dick Fuld) joins the ranks of the recently departed.

Lehman's sale (if it goes this way) would not use government funds. Other banks, whilst not at all keen to be part of a takeover/rescue, have been continuing to trade with Lehman because by now they are realising that it's in their interest not to keep panicking. The rating agencies could spoil that, but will not do so until after the weekend at least.

http://uk.reuters.com/article/businessNews/idUKN0927996520080912?sp=true
 
Francesca R said:
Other banks, whilst not at all keen to be part of a takeover/rescue, have been continuing to trade with Lehman because by now they are realising that it's in their interest not to keep panicking. The rating agencies could spoil that, but will not do so until after the weekend at least.
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That is an interesting thing. The herd learning not to stampede.

From the article:
The DJ Stoxx European bank index was up 1.7 percent.
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Hahaha!! DJ Stoxx...
 
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1) Lehman Brothers will go bankrupt--no buyers. Perhaps there would have been (Bank of America or Barclays) had the US government guaranteed trading obligations of Lehmans until a transaction was final (which they did with Bear Stearns), but they (the government) did not. There is an unwillingness to invoke further moral hazard for obvious reasons. But other mitigating reasons were 1) Lehmans' failure probably has less severe implications for follow-on multiple bank confidence crises ("systemic risk") because it is neither a deposit taking institution (Northern Rock, UK) nor does it have a substantial prime-brokerage business (Bear Stearns), and 2) there has been more time elapsed for counterparties of Lehman to prepare in advance for this event (not just including a Sunday trading session in which yours truly had to work). So Lehmans' shares will be suspended and worthless, it defaults on its debt (expected recovery rates are guesswork but around 30%) and credit-related transactions with Lehmans (the stuff that was being shut down yesterday by other institutions) will be voided due to its insolvency.

2) Various stuff about the US Federal Reserve further expanding the types of things it will accept as collateral (subject to a risk-adjusting haircut) to lend to banks. Not many banks are using this facility though.

3) Merrill Lynch ("the one that would be next") has arranged to sell itself to Bank of America to remove the possibility of a contagious speculative attack.

4) Ten banks have set up a private USD70bn lending facility that that stands outside any central authority arrangements (like the Fed) to help each other out if need be. This is a commercial "lender of second-last resort" decision that is in the same vein as "the herd learning that it is overwhelmingly in their interest not to stampede"
 
Though this is going to hurt short term long term it can only be a good thing, I think of one of the big boys had to fail in this crisis. The whole 'let us create complicated financial instruments to avoid due diligence’ business model needs to be shown for what it is, a stupid thing to do.

Fuld deserves this too, his arrogance until the end is getting a deserved comeuppance, say what you want about UBS (as one example) at least they admitted their exposure early and took the hit.
 
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The BBC TV news this afternoon showed employees from the London office departing with their personal belongings in cardboard boxes. Apart from losing their jobs many of them will also have lost most of their savings as they were encouraged to invest them in the bank.

Leon
 
leon_heller said:
The BBC TV news this afternoon showed employees from the London office departing with their personal belongings in cardboard boxes. Apart from losing their jobs many of them will also have lost most of their savings as they were encouraged to invest them in the bank.
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I got no sympathy for that, I'm afraid.

I deliberately avoid investing in the sector where I draw my paycheck, precisely because if Little Green Men invade tomorrow and the entire university system is replaced by a series of knowledge pills or something, I'd still have Wal-Mart and BP stock to fall back on. If I worked for Google, I wouldn't touch search engines -- or tech in general -- to park my money. If I worked for Third National Bank, I'd be all over Google and Apple like white on rice and wouldn't touch Citicorp.

If the employees don't know about risk diversification, how TF did they get jobs in investment?
 
drkitten said:
I got no sympathy for that, I'm afraid.
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I'm not sure how accurate it is anyway. There will have been attractive share ownership terms made available to all employees of an investment bank (and indeed this is mirrored at many other companies), but that does not usually translate into employees diverting large fractions of their savings into company shares.

For senior executives, an increasing slice of their compensation will have been diverted into notional shares (or options) in a mandatory fashion, and they will bear a bigger hit, although in theory the senior ones were those more able to influence the outcome that has just unfolded unhappily.

If they are talented individuals--even in a credit crisis--they will find new employment.
 
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Does anyone think there will be a run on retail banks? Should we be afraid? Or is this just chicken-little thinking?
 
Peacock said:
Does anyone think there will be a run on retail banks? Should we be afraid? Or is this just chicken-little thinking?
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Not in the UK, since when Northern Rock started to experience a bank-run (exactly a year ago) the Treasury publicly guaranteed every penny of all deposits that savers had placed with the institution (and later nationalised it). Retail deposits losing value would be very contagious and this is something that (I think) every government sees as being in the public interest to prevent.
 
balrog666 said:
It's not chicken-little thinking if the sky really is falling. :p
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Almost by definition. Chicken-little thinking is believing incorrectly that the sky is falling.

Since the sky isn't falling, and you apparently believe that it is....

... well, I'll leave the conclusion "as an exercise for the student."
 
drkitten said:
Almost by definition. Chicken-little thinking is believing incorrectly that the sky is falling.

Since the sky isn't falling, and you apparently believe that it is....

... well, I'll leave the conclusion "as an exercise for the student."
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Well, in the case of Washington Mutual the sky could actually be falling....

"The biggest risk for WM is a run on deposits," said Chris Brendler, analyst with Stifel Nicolaus & Co. "With all the negative headlines and recent IndyMac failure, WM's retail deposit franchise is a huge concern to us as a significant outflow of consumer deposits could lead to devastating liquidity problems since the company has apparently already lost access to the capital markets."
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http://money.cnn.com/2008/09/15/news/economy/wamu/?postversion=2008091509
 
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