Our item on Lehman has provoked sadness and not a little outrage by some of our readers who are both Lehman employees and investors. We’re accused of simply buying into the rumor fueled fire that is burning down Lehman brother’s share price today. In fact, at least one person familiar with the firm suspects a conspiracy behind the fall of Lehman’s shares today.
“Of course, LEH is again tanking today, and the most ominous rumor I’ve heard has to do with Goldman trying to break us while they have the chance (like they did to Bear),” one Lehman investor said on the condition of anonymity. “The resulting fire-sale would be an even higher quality corporate liquidation bargain than Bear Stearns’ portfolio, which was legitimately stinking up the joint. I can see how that would greatly benefit the big firms, even if it is vile.”
He adds that Lehman should have plenty of money so long as counterparties and investors don’t panic.
“The Fed says we have $200 billion of credit if we need it (with the ability to pledge the ‘worthless’ securities as collateral if we’d like). Fuld is absolutely right, liquidity should be off the table,” he says. “But even if we can let everyone cash out successfully, we still need customers! Short of publishing the firm’s complete balance sheet, how could any company manage the market’s insistence on jumping a perfectly sound and well-sailing ship?”
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No basis for it, but that was my initial thought this weekend after BSC – some prop guys (probably Goldman) are out gunning for banks. Gutting a healthy firm like Lehman has enormous upside to poachers, as does the shorting bet.
I just think the big problem is that, yes, all the big banks (I-Banks and commercial banks) have a vested interest in seeing one of their own fail — as long as it’s not them, it’s a net positive. They get the chance to raid the carcass of its old clients.
This is among the (myriad) problems the Fed and/or Treasury have to address: it has to prevent or disincent the banks from using this as an opportunity for gaining market share, at the expense of the stability of the whole system. It’s like they’re all shipwreck survivors, and they get the idea that if they rock the other end of the boat and toss another guy overboard, they’ll have less competition for the food. (Or insert your own canniabalistic metaphor here.)
Normally, that would just be fair play in a tough business. What’s different now is the –> rotating
I just think the big problem is that, yes, all the big banks (I-Banks and commercial banks) have a vested interest in seeing one of their own fail — as long as it’s not them, it’s a net positive. They get the chance to raid the carcass of its old clients.
This is among the (myriad) problems the Fed and/or Treasury have to address: it has to prevent or disincent the banks from using this as an opportunity for gaining market share, at the expense of the stability of the whole system. It’s like they’re all shipwreck survivors, and they get the idea that if they rock the other end of the boat and toss another guy overboard, they’ll have less competition for the food. (Or insert your own canniabalistic metaphor here.)
Normally, that would just be fair play in a tough business. What’s different now is the –> rotating
Whoever our double-posting guest friend is above hit the nail squarely on the head with that comment, touche
this brief moment of optimism about LEH is gonna be gone by week’s end
that would be sad
I think the finger-pointing is symptomatic of the breakdown in trust that has occurred, couched in the friendly-sounding words “counterparty risk.”
No matter what I-Bank you are in, I don’t think when looking at the big picture, you would be happy to see BK in Bear Stearns or a major rout in Lehman either. It will ultimately affect *your* ability to get funding, and the implicit trust that investors and lenders have in your own stability. It is not in our best interest to cheer on systemic risk, no matter what part we play on the Street.
I dont buy that these guys are so stupid to go around trying to screw one another … The articles earlier about them being in the trust game is true. These guys need us to believe in them and to trust in their future.
Although they are generally full of testosterone’d males who forget the big picture at times … none of them could be that stupid to think that Bear and Lehman’s situation is a good thing.
LOL JPM is moving into Bear’s building. That’s the only reason they did this fucking deal. What a humiliation for Bear.
@ 4:24 – the danger is thinking of them as one cohesive entity; I think a lesson from LTCM is that the right hand (corporate strategy) can be putting out industry fires while the left hand (prop) is pouring gas.
Since Cayne is always away playing bridge, does he EVEN KNOW that JP bought Bear Stearns on Sunday??
He wasn’t there when the hedge funds went under, so can someone please call him and tell him that Bear just went under??Here’s his number 877-555-GONE.
4:24 – if their benchmark was absolute returns, then you’d be right.
but if they’re going for relative performance to the benchmark, they’re going to screw them.
remember that research? went something like… would you rather have:
1) a 10% increase in your pay while everyone else gets a 12% increase
or 2) a 5% increase while everyone else gets nothing
everyone chooses 2.
screwing BSC and LEH now will help their relative performance in the future.
i agree with 4:40, can’t think of them as cohesive entity. if they went for absolute then maybe you could, but everyone goes for relative.
4:24 – if their benchmark was absolute returns, then you’d be right.
but if they’re going for relative performance to the benchmark, they’re going to screw them.
remember that research? went something like… would you rather have:
1) a 10% increase in your pay while everyone else gets a 12% increase
or 2) a 5% increase while everyone else gets nothing
everyone chooses 2.
screwing BSC and LEH now will help their relative performance in the future.
i agree with 4:40, can’t think of them as cohesive entity. if they went for absolute then maybe you could, but everyone goes for relative.
It’s going to be hard for any dealer broker to be pushed out now with liquidity from the Fed.
re: 4:24pm
I couldn’t disagree more. These firms (in good times) spend all day, every day, trash talking each other to clients, trying to one-up each other, trying to figure out how to undermine each other’s credibility. If you think that behavior largely goes out the window when there’s real, industry-wide trouble brewing, I just don’t think that’s reasonable.
The only way that behavior stops is when people are re-incented (read: banged over the head) to do something different. For example, just because Goldman’s stock has gone from $250 at its peak to $150, do you think they’re worrying about how bad it’ll be if Lehman goes down? Think about it: even two weeks ago, I’d be willing to bet that Bear was assuming it would get to watch one of the other big firms fail, so that Bear could come out ahead.
No, GS would see the error of their ways the day AFTER they woke up to see their stock slashed 90% in a day (the way Bear did today), or maybe at the earliest, a couple of days before that. Short of that, I don’t think it would even occur to them to think, “hey, maybe we won’t be able to hang on if the rest of the Street suffers too much.”
Nope – my guess is that they’re thinking tonight, “hey, how can we get people shorting JPM tomorrow?” and not “oh, my God, this has gone far enough, we need to help shore up the industry.”
I agree with 5:40, except I would have probably said broker dealer because I am a conformist.
uh, @5:06, You have Mr. Cayne’s number wrong its 877-ASS-HOLE.
Can we at least agree that using the word “incented” or its variants (e.g., “dis-incent”) reduces your ability to win an argument or even make a decent point by at least 42%?
yeah i prefer incentivize
incented – part of the language now
http://dictionary.reference.com/browse/incented
But actually, your light-hearted scoffing at the word usage out of hand (i.e., it doesn’t sound right to ==> you
How do you get a quote for the CDS on LEH on a bloomy?
~Stupid Equity Guy
get it on a run or else do:
CLEH1U5 and then do either a GP or ALLQ
shows 5yr, will trade at different levels up and down the curve
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/03/18/cnlehman118.xml
Lehman Saved.
===
the New York Fed contacted key executives at a number of leading banks, including Goldman Sachs, Citigroup and Morgan Stanley, to discuss Lehman’s situation over the weekend.
By yesterday morning, the banks’ prime brokerage departments – which service hedge fund clients – were under strict instructions not to do or say anything in the market that could damage Lehman.
Why should Kerviel be sitting in a jail cell while his “superiors” are in some cases still running the show at SocGen, and in others presumably sunning themselves on a beach somewhere? Once regulators notified SocGen management that something was seriously wrong with Kerviel’s trading activities, management became more responsible for the situation than Kerviel. As long as they’re running around loose, he should be too.
Lehman to the gossipmongers: “we shall not flag or fail. We shall go on to the end … we shall fight in the seas and oceans … we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills, we shall never surrender…”
@8:40 thanks for you post. some dude came into my cell, gave me back my shoelaces and said: you can leave now. guest’s outraged posts on dealbreaker.com put unbearable pressure on the judge and he’s decided you can go.
If we ever meet, introduce yourself to me. I’ll probably kiss you, but don’t be offended. That’s just the French way of saying hello.
-Jérôme Kerviel
It seems the job cutting process has started already in Leh………..
Was at an industry event today and learned that Bear has been busy since Saturday firing [even essential transition] staff to clean itself up for savior JPM…and as for Lehman, yes, it seems that they are also clearing out the wheat and saving the chaff… .
So, who shorted stock at 20, if you believed in all this crap!
wtf what prop desk has a relative return to benchmark target? that’s insane.
Ooops just called Lehman – no one’s manning the main number…and it’s 5:30 p.m. So much for customer service!
Ooops just called Lehman – no one’s manning the main number…and it’s 5:30 p.m. So much for customer service!