Investment Bank Bankruptcy?
The Hunt Is On For Bankruptcy Candidates

Posted by John Carney, Aug 21, 2007, 12:11pm

Talk continues on Wall Street about the rumors that spread in the early hours this morning that a major US investment bank had or was about to file for Chapter 11 bankruptcy protection.

“We've heard vague talk a US investment bank is in trouble,” a source tells Thomson Financial, which first reported the story.

While a bankruptcy of a major investment bank is not beyond the realm of possibility, we’re skeptical on this rumor. If this was real, we would expect that there would be even more rumor-wine leaking from the grape vine than there has been. Even Thomson sounds a skeptical note about the report. “Another dealer said he had heard that a banking group has filed for Chapter 11 protection, but pointed out that any such news would be on the SEC website,” Thomson writes.

But if there's one thing that has us wondering if there might be something to this story, it's the full-court public relations press coming from our nation's capital this morning. Treasury Secretary Hank Paulson went on CNBC this morning, before meeting with Federal Reserve chairman Ben Bernanke and Senator Chris Dodd. Cue shots of Bernanke walking through the halls of the Capitol building. Pan to Dodd press conference. Why all the pomp and circumstance unless something is very, very wrong?

Wall Street outlook down on talk large US bank filed for Chapter 11 protection [Thomson Financial via Forbes]

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Posted in: Bankruptcy, Rumors

Comments

Posted by Jamie.BuchersGhost, Aug 21, 2007 12:17PM

Chris Dodd's quote of the year:

"we don't want to see americans homeless thru no fault of their own"

Guess Dodd doesn't consider people who buy a home 10x outta their price range, faulty.....quick buy me 5 new homes, the Gov's gonna bail my ass out anyways!

Posted by , Aug 21, 2007 12:20PM

Well duh, that's why we have a government in the first place to take care of us when we make mistakes. Think if you lived in other countries where you'd have to suck it up when you made a goof. That'd be downright awful.

Posted by anonymous, Aug 21, 2007 12:30PM

maybe they should try and get the CFTC to bail them out..

Posted by Bill, Aug 21, 2007 12:32PM

Put this in perspective. Look at the leverage used by Hedge funds as compared to the leverage used by the average homeowner. The homeowner looks pretty conservative.

Posted by , Aug 21, 2007 12:34PM

lehman brothers

Posted by eurodollars, Aug 21, 2007 12:36PM

heard bear stearns on a squwak service, they said it was coming out of the FX mkt. yes i laughed.

Posted by levered hedge, Aug 21, 2007 12:38PM

put this in perspective Bill....
blow me.

Posted by LippyTex, Aug 21, 2007 12:42PM

"put this in perspective Bill....
blow me."

Lord Browne!!

Posted by , Aug 21, 2007 12:43PM

Re: Bill

Do you understand finance?

First of all, homeowners are completely undiversified, whereas hedge funds are at least in theory taking many different bets on uncorrelated assets. Secondly, many of the subprime loans that are defaulting are interest only. What do you think the Debt/FCF is for people who need to take out interest only loans because they can't afford to pay down principal?

Posted by Fake Don Lapre, Aug 21, 2007 12:48PM

Owning one home is being a homeowner. Owning 2 homes is being an investor. Owning $1 billion of CDOs is being a doofus.

Posted by Bill, Aug 21, 2007 12:49PM

I'm confused, if hedge funds were so well diversified, why did they take it up the bungy over the past few weeks? You are a prime example of why the Fed is not cutting rates. They want to see you squirm.

Posted by levered hedge, Aug 21, 2007 12:52PM

lippy tex you made my day. lol.

Posted by not...John Devaney, Aug 21, 2007 12:56PM

Hey Bill - I have not lost my home

Posted by Bill, Aug 21, 2007 12:57PM

Then you must be diversified.

Posted by uneducated, dirty local, Aug 21, 2007 1:01PM

dont understand finance, dont hardly spoeak englis, but know plenty of locals who makes more than the harvard/yale/mit crews who routinely blowup billions for folks who dont even know their pension money is at risk...

Posted by , Aug 21, 2007 1:06PM

Its a good thing that their pension money is at risk. Otherwise they would be earning the risk free rate and not have much of a pension to speak of.

Posted by Lee D, Aug 21, 2007 1:12PM

Fake Don Lapre, that was a truly outstanding trolling effort. Good show.

http://businessopinions.blogspot.com/2007/08/quote-of-day_21.html

Posted by JT, Aug 21, 2007 1:37PM

While there are myriad exceptions, there are not all too many hedge funds with such a concentrated bet, and such substantial leverage (>10x), who are so painfully unaware of the conditions of their 'investments' as many of these sub-prime borrowers were.

Don't even make the comparison if you don't understand basic finance, thats what the comment section on DealBook/Deal Journal is for.

Posted by Genius, Aug 21, 2007 1:50PM

LTCM took many bets on uncorrelated assets.

Posted by Kigol, Aug 21, 2007 1:54PM

I fail to see how a homeowner who knowingly takes out a loan which they will be struggling or incapable to pay down for 30 years is not seriously leveraged.

I think the key difference here as JT said is that some funds are unaware of the crap value of their assets whereas home values are not plummeting but rather its the owners who's can't pay and knew they couldn't pay from the door.

Put that in perspective.

Posted by Optimus subprime, Aug 21, 2007 2:23PM

Hedgies vs. consumers, not much difference if you ask me. They both made the same bets - home prices will continue to increase, which will keep the subprime market from imploding.

Consumers did it because they don't know any better and because investing in tangibles is close to their heart. Hedgies did it because of complex statistical models that more or less said "if this worked for 20 some years, it might work for one more".

Bottom line: stick to the fundamentals

Posted by james cayne's first wife, Aug 21, 2007 3:03PM

BSC. oh wait, they said a Major Investment bank....

Posted by Fake Lee D, Aug 21, 2007 6:45PM

Lee D

How to troll a troll .... you CHIMP

Posted by NC, Aug 21, 2007 9:50PM

Wachovia Securities? Golden West blowing up in their faces?

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