The Fed worked mightily to get rid of the stigma attached to banks going to its discount window. But for its newly minted investment banking fund window, the stigma perseveres. Today Lehman Brothers's treasurer spoke to CNBC to deny speculation that it accessed the Fed's borrowing window, and this denial seems to have lifted the financial sector a bit. That's stigma in action.
Lehman says the last time it went to a Fed facility was April 16. It claims its cash on hand rose $40 billion in the first quarter. But Felix Salmon points out that Lehman's hedging strategy seems to have been destined to fail because they tried to hedge specific positions. When markets behave chaotically, hedges like those attempted by Lehman fail. "We've seen this movie before, most memorably at Bear Stearns," Salmon writes.
Posted by To The Hilt , Jun 03, 2008 4:44PM
stigma or not....
http://bigpicture.typepad.com/comments/files/fredgraphfile.png
Posted by guest , Jun 03, 2008 5:30PM
Maybe they can put Erin's legs in that "movie we've seen before", and this time they'll hope for different results.
Posted by DrederickTatum , Jun 03, 2008 6:07PM
@To The Hilt
Thats an astonishing chart...wow
Posted by guest , Jun 03, 2008 7:45PM
Is Lehman going to be bought out or go under?
Posted by guest , Jun 03, 2008 9:12PM
http://www.stuffinvestmentbankerslike.blogspot.com/
Posted by guest , Jun 04, 2008 8:41AM
does that chart represent only borrowing by depository institutions? or does it include borrowing by the IBs as well?
Posted by guest , Jun 04, 2008 8:47AM
anyone hear rumor lehman will be bought by barclays?
-chad
Posted by DrederickTatum , Jun 04, 2008 10:50AM
@8:47 - I haven't heard anything. So the following is purely hypothetical:
The Bear Stearns situation has created an interesting paradigm. Suppose an investment bank's clients begin to flee out of fear of the counter-party risk. When this happened to Bear Stearns, Schwartz/BSC imprudently rode the sinking ship all the way down to 2 dollars a share.
If, hypothetically, another bank starts to sense its clients are walking out the door en masse, then that bank would HAVE TO sell itself as soon as possible to maximize the shareholder value. Fear of counterparty risk and client flight destroyed BSC more than anything. Its infinitely more important to cut an immediate deal... waiting around for a better price can be lethal.
I haven't heard any rumors about Lehman - either about a sale or about clients running away. Frankly I don't think LEH is in near the trouble BSC was in... Among other reasons, LEH has infinitely better management than BSC had.
But it's not difficult to imagine a merger arising without much rumor or conjecture. Given what happened earlier this year, it might a struggling I-Bank's best move.
I'm rooting for LEH. I'm not sure how many more dying investment banks this economy can handle. Over the years, Lehman's been run fairly well compared to say, C or BSC. It would blow my mind if LEH went down.
Posted by guest , Jun 04, 2008 12:27PM
LEH is not BSC. It's a pretty tightly run ship that has put up better numbers than most of its competitors for years now. From what I've read, Citi and ML have a lot more to be worried about.
Posted by guest , Jun 04, 2008 4:02PM
More like a pretty tightly run sinking ship. They've let go their most senior credit and risk managers over the last year and meanwhile the desks have been shooting for the rafters...cannot wait for the post-mortem.
Posted by guest , Jun 04, 2008 4:03PM
More like a pretty tightly run sinking ship. They've let go their most senior credit and risk managers over the last year and meanwhile the desks have been shooting for the rafters...cannot wait for the post-mortem.
Posted by guest , Jun 04, 2008 4:05PM
chad, that was yesterday. today its korean investors. tomorrow, who knows.
Posted by guest , Jun 04, 2008 4:12PM
@12:27 LEH is not BSC? Why not? Its businesses are not hugely concentrated in mortgage structured products? They are. It is not hugely levered? Lehman has the highest leverage of any bb broker.
The ONLY real difference that matters is the Lehman Brothers can borrow from the Fed now.