We understand that a deal has been reached to divide Lehman Brothers into two entities, with a "bad bank" taking the toxic, real-estate assets amounting to around $85 billion. The deal will be financed without any government backing. Lehman chief executive Dick Fuld will resign.
Bank of America will take the lion's share of the good assets of Lehman, with Barclay's and Nomura playing a role as well. An international consortium of financial firms will inject capital for the deal, preventing Lehman's assets from flooding the market in a fire sale. Many US based firms have not played a large role, in part because they are facing their own financial challenges.
Dick Fuld's resignation was demanded by Bank of America, which played a brinkmanship role in negotiations, threating to let Asian markets open tomorrow without a deal in place, a person familiar with the matter says. Many believe that a Monday market opening without a resolution would effectively have been the end of Lehman Brothers and could have spread financial turbulence to other securities firms. (On a side note: apparently, Japanese markets will be closed Monday morning for a holiday.)
Fuld is said to have taken tonight's developments very badly. He does not believe that the situation is as desperate as others on Wall Street believe it is, and may be trying to negotiate an alternative deal, we're told.
Of course, the situation remains fluid and there is still a possibility that the deal reached tonight could fall apart. Many of the details remain to be worked out, although there is widespread agreement on the outline of this deal.
Update: The New York Post is reporting that Lehman was taking offers for its investment management business today.
The notion of a planned sale of its asset-management operation, which is anchored by Neuberger Berman, is alive because Lehman plans on using the offers, which were submitted yesterday, to help assign a value to the entire bank, sources said.
Posted by guest , Sep 14, 2008 3:11AM
First.
Posted by guest , Sep 14, 2008 3:16AM
2nd
just got back from beating up a few hipsters on the LES.
Posted by beentheredonethat , Sep 14, 2008 3:17AM
That is a beautiful scoop. How did the bad bank go from an estimated 30 billion to 85 billion. If that is true, and they had that much toxicity on their books, get ready to do this all over again with MER, as clearly the magnitude of the problem exceeds the previous worst case scenarious.
Posted by guest , Sep 14, 2008 3:18AM
3rd.
I am the CEO of a hedge fund.. what is the LES?
Posted by Seaman Bodine , Sep 14, 2008 3:20AM
Seriously, everyone will know want to offload their junk.
Posted by Seaman Bodine , Sep 14, 2008 3:20AM
Seriously, everyone will now want to offload their junk.
Posted by guest , Sep 14, 2008 3:20AM
5th.
Mayo+ Dick Fuld= Toxic assets
Posted by guest , Sep 14, 2008 3:20AM
5th.
Mayo+ Dick = Toxic assets
Posted by guest , Sep 14, 2008 3:41AM
Can someone tell me why the top executives can't just take the firm private? If everyone chips in, I am sure they have enough to buy out the firm.
Posted by Investorcluzo , Sep 14, 2008 3:43AM
based on this development, I would expect to see wm, wb and wfc all down (big) on monday. it's good to see that bofa was able to work out a good deal. empire building is no longer a good thing...it was good before the credit crisis, but today it's a negative.
night, night.
Posted by Seaman Bodine , Sep 14, 2008 3:45AM
LEH is like a really hot chic wanting to bang you, but there's a sex tape with Vernon Troyer making the rounds on Red Tube.
Posted by guest , Sep 14, 2008 3:46AM
@9
from nypost
Lehman's brass is also pushing to keep the firm independent and take it private through a management buyout. But that strategy is fraught with challenges given the stunning wealth erosion Lehman executives have just experienced.
Posted by John Carney , Sep 14, 2008 3:47AM
Alright, it's nearly 4 am in New York. We're going to bed. Updates as warranted after we get some shut eye. Please keep updating in comments with anything pertinent.
Great work today, lads and lasses.
Posted by Investorcluzo , Sep 14, 2008 3:47AM
@9 - stop being naive. did you read the story about how much mgt/directors have lost in the wsj? these guys don't have enough to buy the bank. further, it would take a while to get financing (given that credit is so much tighter).
Posted by guest , Sep 14, 2008 3:49AM
well wfc and wm are different animals with different income venues. LEH is an investment bank and thus restricted to its base business.
WFC and WM as well as BoA and WB will be up slightly Monday.
Posted by beentheredonethat , Sep 14, 2008 3:50AM
@9
They could probably come up with the cash to buy the firm at this market cap, but if that bad bank is going to be stocked with 85 billion in bad assets, they would not have the capital cushion need to run the firm once they bought it. And what ever assets they are claiming are clean on 9/13 could be really dirty by 9/20 in an environment like this.
Posted by Investorcluzo , Sep 14, 2008 3:54AM
@15, wb and wfc should be facing significant downside pressure. not sure that they should go up in this enviornment, esp. if leh goes down without a backastop. the only thing saving wm is the fact that tpg just raised $50 billion more, $6 billion alllocated to fin. services.
Posted by guest , Sep 14, 2008 4:27AM
I'm struggling here, who is putting up the equity for this $85bn shitbus?
Why are foreign banks like Barclays and Nomura putting money into a vehicle to attempt to prevent these assets coming to market in quantity?
Posted by beentheredonethat , Sep 14, 2008 4:41AM
@18
Alot of this isn't making sense.....the bad bank was supposed to have 30 billion and now its tripled to 85 billion.....what the fuck is on those books?.....not a chance these banks/brokers have 85 billion lying around when they gonna have to write off so much more shit if LEH has got 85 billion in shit.......really not making sense.
I would love to know where JC got his info, because the main meeting broke up early this evening and its not to reconvene until the morning.......
Posted by guest , Sep 14, 2008 4:57AM
I think Lehman's stock could soar on Monday if the deal goes through like this. They get the bad stuff off their books and than the value of the investment banking business has got to be worth more than $3 to $4 a share.
Posted by beentheredonethat , Sep 14, 2008 5:04AM
@20
I'm thinking its not going to work that way. You get rid of all the shit, the consortium finances 85 billion of it, the remaining LEH is clean, and Dick Fuld and the people who created the mess cash out at a high price? Who would stand for it? And how is that a desired outcome? I'm totally confused about this whole deal as laid out....makes no sense.....you?
Posted by beentheredonethat , Sep 14, 2008 5:08AM
@20
Also, Carney posted his version 2 1/2 hours ago.......absolutley NO ONE has posted anything anywhere else.....NYT, WSJ, FT, CNBC all quiet since the meeting broke up more than 8 hours ago....no clue where he got it......and who involved would be speaking at 2am with the deal hanging in the balance.....that 85 billion figure is enough to cause a crash......what's MER figure? 150 billion?
Posted by guest , Sep 14, 2008 5:12AM
If the deal was structured like Carney says, it would be a MASSIVE subsidy from all the banks to Lehman. The stock closed at $3.65 on Friday. I say it rises on Monday on a deal anything like this.
Posted by beentheredonethat , Sep 14, 2008 5:21AM
So the resuing banks get all the downside and Fuld and LEh get all the upside? No fucking way.....there's is no way they are going to let Fuld and the rest get whole on their shares while they remain under duress in these markets and LEH escapes with a clean balance sheet and a rising stock price....not a snowballs chance.....we're missing a BIG part of this equation......
Posted by beentheredonethat , Sep 14, 2008 5:23AM
rescuing
Posted by guest , Sep 14, 2008 5:27AM
Maybe the bad bank stuff is sold at low enuf level to make Lehman insolvent even if they sell investment management arm, etc. at good levels. Than stock price still could be wiped out.
Posted by guest , Sep 14, 2008 5:55AM
The "good bank" sold to BofA or Barclays would take the AM business plus I guess all the credit default swaps LEH has written. The "bad bank" would have the bad real estate assets valued to $85 million, the leverage that went with it, plus the $30 billion injected by the Wall Street brothers. The bad bank would not be in a rush to sell the real estate assets. The lenders in the bad bank who lent against the real estate assets may take a hair cut too. Just my 2 cents worth. Singapore Don
Posted by guest , Sep 14, 2008 5:59AM
@ 5:55 what do you think Lehman's stock does on that?
Posted by guest , Sep 14, 2008 6:01AM
stock is wiped out
Posted by guest , Sep 14, 2008 7:13AM
The company has isolated the infection, Fuld is gone and 2 giants are running with the good books. Barring any last minute dilution of the stock, or change in the deal-Stock will rise monday.
Posted by guest , Sep 14, 2008 7:26AM
The consortium putting up money to take a stake in Lehman's "bad bank" because they don't want to be the Bear Stearns in the LTCM deal this time around.
Even banks (notably Merrill) who have no financial capacity to take part in the consortium are doing what they can to be helpful to faciliate some sort of deal.
All the banks in the consortium have substantial toxic stuffs in their books as we speaking and they joining the consortium because they all fear that they may need bailing out later.
A good analogy of the capital structure of US banks and brokerages is that of a towering inferno. The fire has taken hold on the lower floors (subprime stuffs) and is moving up fast to the higher floors (Alt-A and other previously AAA stuffs). For this rescue to be successful, Paulson and Bernanke will have to find a way to stop the housing market from rotting further.
Posted by guest , Sep 14, 2008 7:33AM
what they will be doing with their India BPO office supporting majority of Lehman's IT Infrastrucutre
Posted by guest , Sep 14, 2008 7:40AM
Based on DB's post it sounds like the drafting of the deal that was reported last night to be discussed when the meeting reconvened today has been drafted and agreed to already...could that really be? I'll be interested to see the list of banks that have that much cash to throw in given the state of everyone's balance sheet with 85 billion in toxicity on Lehman's. This sure sounds positive but seems so unbelievable that everyone could have already agreed to it? Guess we'll see shortly.
Posted by guest , Sep 14, 2008 8:28AM
With all this drama happening at LEH I can't understand why no one is talking about Citi. That bank has even more crap than MER and yet its stock price didn't get thrashed last week. What's up?
Posted by diablo , Sep 14, 2008 8:29AM
All I know is that the big guys are back at it this morning.
Is anyone else thinking that what might be happening here is the finalization of that Super-SIV plan that was floated almost a year ago?
Posted by diablo , Sep 14, 2008 8:32AM
@34
I know Citi is involved in what's going on this weekend. They have an advantage because they never sleep.
Posted by beentheredonethat , Sep 14, 2008 8:45AM
@31
Really BAD analogy. If you recall "The Towering Inferno", they blew up the top floors in order to put the fire out down below......(that's where the water tanks were)
Posted by hf_dbag , Sep 14, 2008 8:49AM
they also have saudi backing. that helps.
Posted by beentheredonethat , Sep 14, 2008 9:05AM
@38
The Saudi prince has lost billions already in Citi, and he is the largest, or close to it, shareholder......
Posted by guest , Sep 14, 2008 9:11AM
does the cds go to the good bank or the bad bank?
Posted by beentheredonethat , Sep 14, 2008 9:17AM
Hang on 40. We have zero confirmation of Carneys 2:43 am post. At 85 billion, there is no bad bank without massive government guarantees which they have said they won't do. The banks don't have adequate capital to set up the bad bank and protect their own balance sheets. This is going to be a white knuckle ride today and somebody needs to blink or the 15th of September will be rememberred for a long time. Please don't forget, AIG and MER are waiting in the wings, and the more stuff they cram into a bad bank, the worse it become for those two and everyone else. This is really beginning to look like a no-win situation.
Posted by guest , Sep 14, 2008 9:20AM
So it's $85 billion in garbage instead of $30 billion? Jesus. WTF did some people come up with during the boom? There was three TIMES as much toxic waste as had been reported just hours earlier?
All or almost all foreign is the only way something of this size could possibly get done. There's not enough public capital on Wall Street for the smaller bad bank.
We shall see if this actually goes through. A lot of this sounds like it's being negotiated without Lehman actually being in the room. That's not necessarily going to work.
Citi...no one is talking about Citi because Citi holds trillions of US retail banking deposits. They absolutely do have a government backstop. Anyone who is holding enough FDIC deposits to wipe out the FDIC will get a government bailout.
I don't know why some idiot is posting that WFC should go down on this news. Probably some stupid hedgie who is short WFC on the prospect of a Lehman BK causing a crash. Wells wasn't in to any of this garbage.
Posted by beentheredonethat , Sep 14, 2008 9:27AM
No one so far knows how the figure tripled overnight. But if it is 85 billion, MER probably would require 150 billion......and God knows what you do with AIG, but by that point absolutely everyone is tapped out. Might as well take a crash and clear the decks pronto, because there doesn't seem to be a workable solution to this. Assume you get an ordlerly demise of Lehman, the minute that done, you start over with MER......not pretty.
Posted by guest , Sep 14, 2008 9:28AM
In a market that has spun out of control, I find it sad to see a company such as Lehman in a situation like this. Blog postings from people who have a financial incentive to make things look rotten have gotten their way. I hope that Fuld finds a way to take the company private and show the naysayers that it could survive on its own and in a few years come back as a public company. People keep mentioning toxic assets, but the fact remains that you do not buy a brand new $100 bike at a Bicycle shop for $10. There is an underlying value to the bike that prevents it from being sold for $10. When the markets return to normalcy (no person knows when that day will come- and thats what scares people) that bike will sell for $100 again or somewhere close to that.
Posted by guest , Sep 14, 2008 9:34AM
"Blog postings from people who have a financial incentive to make things look rotten have gotten their way."
Lehman is sound, and just missed the obvious play: put together, what, $50 million, and buy _all_ the blogs that could possibly "make things look worse" and the problem goes away? Brilliant!
Posted by guest , Sep 14, 2008 9:39AM
@44
Silliest comment ever.
Posted by guest , Sep 14, 2008 9:40AM
Financial Times reporting this morning that Barclays is the contender for taking Lehman, but playing hard ball on government guarantee. Reuters is now quoting dealbreaker as a source in a story about BoA being the winner. What is the world coming to?
Posted by guest , Sep 14, 2008 9:41AM
@44, no offense, but if Lehman was sound we wouldn't be scouring the damn globe looking for foreign entities to put of 85 BILLION dollars to fund the toxic stuff that is stuck on their balance sheet (or not on it for all we know)...if they were sound, they would have made that perfectly clear by not taking another massive writedown this quarter. I wish this will all caused by some bad blogs, apparently it's a bit more serious than that.
Posted by guest , Sep 14, 2008 9:50AM
wow...for smart people, you guys aren't reading very closely...
the $85 B number hasn't changed...that is the amount of bad loans to be put in the bad bank...the $30B figure is the amount of NEW CAPITAL that will have to be added to this bank for regulatory requirements, etc...
so once again for those who can't follow details...$85B in loans and $30B in fresh capital...
NOW, this having been said...the WSJ says this morning that the idea is LOSING momentum...
so Carney is looking to be a little early and perhaps incorrect with his scoop...
now, please go back to posting like idiots...
Posted by guest , Sep 14, 2008 9:54AM
i think the interesting thing is that Fuld could have gotten $15 per share for the whole thing last week but he drove the koreans away asking for NORTH of $20 per share...
he's going to look pretty stupid if it gets sold for less than what the KDB offered...
Posted by hf_dbag , Sep 14, 2008 9:54AM
foreign entities were partly responsible for the housing bubble in the first place (by massively intervening in their currency markets and investing the dollars back in the US, depressing bond yields and thus inflating housing). they deserve to take losses.
Posted by guest , Sep 14, 2008 9:57AM
$30 billion is the approximate amount of commercial mortgages Lehman was going to spin off in their 'bad bank' plan in January. They also have around $13bn in residential mortgages and around $7bn in hung levered loans. I have no idea where the $85bn number being thrown around is coming from. Perhaps all the wall street banks are planning on putting their bad loans as well into this new 'bad bank'. That would be the smartest scnerio, and avoid a run on another bank tomorrow morning.
Posted by DrederickTatum , Sep 14, 2008 10:04AM
@34 - You're question is one of the great mysteries of the credit crisis. I have no idea how C has flown under the radar.
It's almost like C is so big and so scary that the market is surpressing the potential nighmare of a C liquidity squeeze.
Posted by guest , Sep 14, 2008 10:13AM
$85 billion in assets is a lot more than any other prior figure I've heard for the size of the bad bank. I agree with 52 - I don't know where it is coming from, but I don't like it.
Posted by guest , Sep 14, 2008 10:15AM
@52 I was gonna suggest the same thing: that other banks are throwing in their stuff as well and that could be their incentive to join in. Except...you really think $85 billion is all there is across the street?
Posted by guest , Sep 14, 2008 10:15AM
Guest@44
Allow me to point out that the bike for sale at Lehman's forecourt was never worth $100 to begin with. This is something everyone has to be abundantly clear about. They might be worth $100 during the go-go days of easy credit.
Another thing we have to be abundantly clear about is that these stuffs are still being carried on the balance sheet at ludicrous values by banks.
I wonder how the massive jump from $30billion to $85billion in toxic stuffs came about. You gotta give it to Erin Callan for jumping ship whiel she could. Respect where it's due. Go Girl!
What is Merrill, WaMu, AIG et al gonna do now? They are royally farked!!!!
My speculations is the consortium acquiring the "Bad Bank" will be seeking for the gradual conversion of the toxic stuffs into Treasury securities in a defined timeframe that is tail-end heavy. This will dodge public scrutiny if the bulk of the conversion only takes place far enough into the future (5-10 years). The consortium, the Fed, and the Treasuryare hoping that the housing market stabilises by then so the market for these tovic junk returns and conversion may only be minimal.
Posted by guest , Sep 14, 2008 10:15AM
The curtain is coming down on the good ole U S of A. Will the last one to leave please turn off the lights?
Posted by beentheredonethat , Sep 14, 2008 10:16AM
@53
The "Too big to fail" theory starts and ends with Citi. It was invented in 1991 when the real estate portfolios at what used to be called money-center banks blew up. Citibank was insolvent, but the feds let it ride until the markets restored balance, and thereby making Citi solvent again. That theory is days away from being tested again.
@44
Lehman has got some shit on their books, which in previous cycles they would have easily survived. The absolutley irresponsible level of leverage is what brought them to their knees, and even though everyone else was doing it, they deserve what they get.
Posted by guest , Sep 14, 2008 10:18AM
I think they have to create a bad bank for the worst assets of all the firms. Maybe it's around 15bn or so from Lehman, and then a bunch from the other firms, all totalling $85bn. Not all the assets lehman was going to spin off were toxic. The street then collecively funds this bad bank. This would then prevent the shorts from running after the next firm tomorrow. It's the only way this will work, without having the same circus next weekend with a different firm.
Posted by diablo , Sep 14, 2008 10:24AM
#53
Agree with your second sentence. The FDIC is nothing compared to C's size of deposits. Remember Volcker predicted this mess would happen when he was still at the fed. But I predict C will have something to do with the resolution of the current "bailout of the week" if it comes to that. If C has nothing to do with it, then perhaps that's a good thing.
Carney's scoop is now looking like a Half Scoop, as the WSJ is reporting some other details missing from Carney's post, and giving some prominence to Barclay's.
Posted by beentheredonethat , Sep 14, 2008 10:24AM
@49
NO WAY. Not until very early this morning did the 85 billion dollar figure appear. You show me one instance of that figure on Friday or before......If that figure was out there Friday, the stock would not be at 3 dollars, but 3 cents. Before you sound off, just show us that figure dated prior to 9/13.
Posted by guest , Sep 14, 2008 10:25AM
To the posters above...
LES = Lower East Side
Indian Back Office = May be busy for months trying to process credit default swap documents post-settlement as Lb let go of some of its most senior Cds back office staff in Nyc
$85 bn = Maybe the add'l $50+ million reflects Lemon's derivatives exposure...they have tons of transactions hedging ABS, CDOs and MBS that are not bonds or notes themselves but rather hedging instruments...marks fluctuate daily and may be linked the value of the structures they hedge
Posted by guest , Sep 14, 2008 10:25AM
"Dick Fuld's resignation was demanded by Bank of America, which played a brinkmanship role in negotiations, threating to let Asian markets open tomorrow without a deal in place,"
So the story is BS.
Major asian markets are, in fact, closed on Monday.
Posted by guest , Sep 14, 2008 10:25AM
@59
So Lehman and its shareholders are gonna take the fall so the rest of Wall Street can survive and move on?
A giant fuckin' SIV to take all this shit. But $85 billion does sound low if this is the real figure.
The circus will return to town bigger and badder when the Alt-A's and other shit hit the fan.
Posted by diablo , Sep 14, 2008 10:26AM
#59
Isn't that what the MLEC or Super-SIV supposed to be?
Posted by guest , Sep 14, 2008 10:27AM
We can sell #59's uber-bad bank to the chinese
Posted by guest , Sep 14, 2008 10:28AM
This story on this site has made it into the mass media.
http://www.reuters.com/article/topNews/idUSN1436126020080914
Apart from Carney's writing there is no support for it.
I really hope that dealbreaker has it right. Certainly, if I saw a similar story on the sister site, www.abovethelaw.com, I would not believe it.
Posted by guest , Sep 14, 2008 10:30AM
London Papers are reporting it's Barclay's Goldman and BofA breaking it into bits and each taking some
Posted by guest , Sep 14, 2008 10:32AM
This is an insane deal.
Bad assets are already bad. Putting them into a different entity is the equivalent of rearranging the deck chairs. By forcing GS,MS etc to be liable for Lehman's crap, you are automatically taking down good banks in a little while.
On the other hand, maybe we can make this ruse last until the December bonuses, so maybe it's all good.
Posted by arthurcutten , Sep 14, 2008 10:33AM
The Korean deal for Lehman was never real.
It was an ex-employee helping out an old pal, and maybe trying to get lucky to further some monumental personal ambition.
The government of Korean nixed the deal after they looked at the books, and set the condition that KDB *might* pursue if they could cut their exposure and gain a consensus through a consortium of banks.
The 'bad bank' is obviously the key, and its probably not going to get done without a bigger hair cut on the exposure (if possible) or some left-handed government support. Skip the Fed's balance sheet, look to the FHLB or special faciliites.
Who can say? Letting it fail has a lot of upside politically IF they can contain the aftermath and disposition of assets. Keep in mind all the assets come back to the US from overseas, leaving foreign governments holding the bag for non-client positions and collateral damage.
Posted by diablo , Sep 14, 2008 10:33AM
#63 Japan is closed, others are not. Also, London opens at 3:00 AM NY time.
Posted by beentheredonethat , Sep 14, 2008 10:33AM
@63
Japan is closed, rest of them are open. Doesn't matter anyway, whoever is closed will execute in London then NY. Would actually be better if they were open as far as orderly markets are concerned. When someone is handcuffed to their positions, they tend to get panicky.......
Posted by guest , Sep 14, 2008 10:34AM
CNBC woke up and updated their site, v hard to discern what is up to date or stale in such a fluid situation. article feels like a decent description of what is going on but no answers yet or expected
Posted by Investorcluzo , Sep 14, 2008 10:35AM
carney good work - websites are all referring to "a website" (ie. dealbreaker) that broke the story.
as for the $85 billion bad bank, the figure makes perfect sense (and could be larger). level III assets at the end of the 2nd quarter were north of $41 billion and level II assets were over $161 billion. the bad bank could have been larger. in addition, I heard a major sticking point to getting a deal done with the koreans, chinese, rbc et. al. was that tricky dick wanted to have autonomy. sorry pal, that's just not going to fly. whether or not he's a good man is beside the point, you can't continue with status quo leadership when you have a meltdown of these proportions. and stop kidding yourself, the equity is worth 0.
with regard to the other big mortgage holders wm, wfc and wb - this is a dark cloud. if leh had to take a significant hit to their assets, the others will surely have to follow suit as a result of the new market realities. if they are up tomorrow, it's going to be a dead cat bounce. in general I think financials should rise "selectively". time to sort the wheat from the chaff.
Posted by beentheredonethat , Sep 14, 2008 10:41AM
@73
I've been following this through the night across all publications. While they continue to tweak articles and put new time-stamps on them, there is no new news since last night. Which makes sense because the meeting adjourned without a deal.....
@49
Respectfully waiting. That is a NEW FIGURE.
Posted by guest , Sep 14, 2008 10:42AM
Auction the valuable pieces for cash. LEH stock remains as the "bad bank". That is the deal.
Posted by bank_teller , Sep 14, 2008 10:42AM
keiretsu, bitches!
also remember, even in the "bad bank" scenario (more acurately "worse bank"?) there still needs to be enough capital in there to support the structure. could be $30 BB of "really bad stuff" plus $30 of "less bad" plus another $25 of "not too bad" just to be able to keep the thing minimally alive.
my compliments to carney and the db posters on keeping this rolling. jc's scoop may not ultimately be the outcome but that's not really the point and we won't know the final until it's announced with some signatures. (and even then...) we'll all be okay as long as we stick with mayo/first/tldr and avoid the dumb discussions about whether palin is too hot to lead.
Posted by beentheredonethat , Sep 14, 2008 10:44AM
@71
Cheers!
Posted by guest , Sep 14, 2008 10:44AM
You need to realize that no deal means MER could be next ... their CLO portfolio was sold to Lone Star on a recourse basis - and that a forced LEH liquidation could cause Lone Star to put those assets back to MER, which also has some $35 billion in resi mortgage exposure. Also, without its asset mgmt business, the firm begins to look an awful lot like what LEH looks like without that business - an traditional broker dealer relying on the confidence of its already battered retail and institutional customers, who will pull the plug if the stock gets hammered on Monday.
Posted by guest , Sep 14, 2008 10:44AM
public holiday in China, HK, Japan, S Korea on Monday
Posted by guest , Sep 14, 2008 10:45AM
MER is already trading at an arbitrary price. The stock getting "hammered" is irrelevant.
Posted by diablo , Sep 14, 2008 10:46AM
#70
I mentioned FHLB angle on Thursday. Sort of has to be there for Banc of America to get involved. Plus FHLB just got the "Gov Sponsored Enterprise Credit Facility" in the GSE deal last weekend.
Posted by guest , Sep 14, 2008 10:46AM
80 - Not true. It's a Japanese-specific holiday.
Posted by guest , Sep 14, 2008 10:47AM
@ 44.
Bike was worth $50 when it was sole for $100. The people who bot it for $100 borrowed all $100. They had a house that they bot for $200,000 with no money down. When the value of the house went to $250,000, they took $50,000 out of the house. Now the house is worth $140,000. The are underwater on everything. As are all thier neighbors.
The value of the bike, if they can get a bid for it, is $1. Maybe if they hold on to the bike for 5 years they can get $10. More likely the bike is part of the assets that are subject ot liquidation when these people go bankrupt (no doubt causing further downward pressure on the price of this asset).
The stupid decision of these fictional people are not the fault of the people who write about it.
@ 44 here is a MSM idea - go buy financials tomorrow. Preferably MER & AIG. After all, but for some irresponsible blog writers, they are really solid investments.
Posted by beentheredonethat , Sep 14, 2008 10:48AM
Reuters is quoting Carney on a non-sourced article with grave implications.......The Year of Living Dangerously. Pray John got it right or they'll be blowback......
Posted by guest , Sep 14, 2008 10:52AM
Of course MER is next. Auction the valuable pieces like the wealth management unit. MER stock remains as the "bad bank". MER still has a line of credit with the Fed to fund short-term needs, stockholders get wiped out and long term debt holders take a hair cut.
Posted by guest , Sep 14, 2008 10:52AM
#75, you are right, am doing the same thing, checking the wires, and the WSJ has done nothing other than change the title. Totally agree w/you, that no deal was reached, but also true that they are meeting now. Impossible to know until its done or not, in the meantime they likely are planning for all eventualities and sizing them up, if thats possible.
Posted by guest , Sep 14, 2008 10:53AM
83, sorry, you're wrong. The holiday in Japan is different than the one in Hong Kong and Korea, but all three markets are closed on Monday.
Take it from someone who works in the region.
Posted by guest , Sep 14, 2008 10:54AM
This is exactly why RON PAUL should've been leading this country years ago. We wouldn't be in this mess.
-Ron Paul Supporter. Go Ron Go!
Posted by guest , Sep 14, 2008 10:57AM
As others have pointed out, the exact markets that are closed or open are irrelevent unless all of them are closed Monday by government fiat, which may not be the worst idea in the world, tbh.
Posted by guest , Sep 14, 2008 10:57AM
Hold the phone! Bill Ackman on CNBC! He has a new plan! 50 pages of powerpoint slides, of his new plan on how to save Lehman. Apparently, involves Lehman and all the investment banks shorting MBIA, pushing MBIA into default. Ackman then takes billions of dollars of his profit, and gives it to charity, as he has previously stated. Then, these charities are going to fund the 'bad bank' to save Lehman. Everyone wins!!!
Posted by beentheredonethat , Sep 14, 2008 10:57AM
@79
No matter what happens, MER is next....if you have a vested interest, you better be awake for the London opening.
Posted by guest , Sep 14, 2008 10:58AM
Agree with @89.
Posted by guest , Sep 14, 2008 10:59AM
September 14, 2008
So ... let’s look at this good bank / bad bank draft deal from a bankruptcy perspective. If / when the bad bank then enters bankruptcy (voluntarily or involuntarily), does any body have a view as to whether The Deal could constitute a constructive fraudulent transfer(s) of good assets away from the bad bank/ debtor and thus be avoided by the bankruptcy court. If deemed a fraudulent transfer, then wouldn’t the owners of the good bank assets (i) be forced by the bankruptcy court to re-convey the good assets back to the bankrupt debtor and (ii) become unsecured creditors ??
Posted by guest , Sep 14, 2008 11:02AM
Comment from Buffett VM:
"We are on vacation until the Feds let someone go BK. For the people at DB, I use my own special sauce. WEB"
Posted by guest , Sep 14, 2008 11:03AM
@bank_teller-- it kind of is the point. jc is generally full of shit, most of his "scoops" not really scoops, most of his "said sources familiar with the matter" imaginary and simply corroborating what he thinks will happen.
Posted by guest , Sep 14, 2008 11:04AM
Reuters just cut the dealbreaker article and replaced it with a headline claiming barclays is leading the bidding...sorry carney
Posted by guest , Sep 14, 2008 11:05AM
#91 Excellent! Of course the SEC will encourage this with their refusal to stop naked shorting.
Posted by guest , Sep 14, 2008 11:06AM
@97-- link plz
Posted by guest , Sep 14, 2008 11:07AM
@94 No fraudulent transfer. Bofa, et al are paying cash for those assets, no? Where's the fraud?
Posted by beentheredonethat , Sep 14, 2008 11:08AM
@94
They wouldn't BK the bad bank alone, they would BK LEH before creating it. The possibility of which is approx. 7 hours away.......
Posted by guest , Sep 14, 2008 11:08AM
@94
Yes, it would be fraudulent conveyance of assets if it was an ordinary banruptcy case. But this is not an ordinary bankruptcy and hence should not be viewed as such. It will be a Fed sponsored conservatorship with the objective of ensuring stability of the financial system so the Fed can call the shots and not be held accountable to anyone.
Listen, it is in everyone's interests (except those of the lehman shareholders and creditors) to look other way and pretend this is a legit transaction.
Posted by beentheredonethat , Sep 14, 2008 11:08AM
@94
They wouldn't BK the bad bank alone, they would BK LEH before creating it. The possibility of which is approx. 7 hours away.......
@49
I assume you concede the point?
Posted by guest , Sep 14, 2008 11:08AM
http://www.reuters.com/article/newsOne/idUSN0927996520080914
or you can try the homepage, it has first billing
Posted by guest , Sep 14, 2008 11:08AM
http://www.reuters.com/article/newsOne/idUSN0927996520080914
Lehman talks resume, Barclays seen frontrunner
Sun Sep 14, 2008 10:42am EDT
Posted by guest , Sep 14, 2008 11:12AM
the part of the equation that some of the comments are seemingly missing (humble opinion) is that any good bank/bad bank resolution likely requires that some large % of monies to purchase the good bank will be added to capital stock of bad bank. if so, current equity is zerod out. also, don't forget good bank investors will have to contend with hostile bondholders. i say hostile because bondholders may very well prefer bankruptcy, just as mr. fuld. i'm betting on bankruptcy where these proceedings properly belong versus this "shark gala" (likely the first of several to come). a concluding comment, all the players who have been mentioned with the possible exception of nomura (former employee) need in excess of 5bil. each now!
Posted by guest , Sep 14, 2008 11:12AM
From WSJ:
Barclays Emerges as a Leader
In Talks Over Lehman Brothers
http://online.wsj.com/article/SB122139688846233147.html?mod=hpp_us_whats_news
bloomberg alo uses BCS alone in headline, but does not comment on who leads
Posted by beentheredonethat , Sep 14, 2008 11:22AM
"Although the bank has reduced its leverage, or debt relative to assets, it still has about $600 billion of assets supported by some $30 billion of equity, meaning the value of its assets need only decline by 5 percent to make the company worthless."
I believe that 5% decline has been achieved over the course of this weekend. I am coming to believe the only sensible resolution is the whole of LEH gets BK'd tonight, and the trustees, whover they may be, begins as orderly a liquidation as possible. There's gonna be a world of hurt, but this bitch is beyond saving.....
It is possible that the meeting at the Fed morphs this afternoon from a rescue discussion to who buying what from the trustees.....That way have some big pieces spoken for prior to the announcement.
Posted by guest , Sep 14, 2008 11:25AM
The only reason Lehman's tanking (i.e. equity = 0) is that the negative drag of its bad assets far outweigh the float of its good assets. Unless Lehman has the wherewithal to wait out the housing recovery, improving its bad assets, it's going in the tank. Makes little difference whether it's in or out of BK.
Liquidating good assets for cash in an asset sale, in or out of BK is NOT a fraudulent transfer, unless the cash you receive is a pittance compared to the good assets' fair value. Creditors of a shitty company are screwed whether they hold cash generating good assets or plan cash upon liquidation.
Lucky for me, the idiocy of the markets (from wall street down to joe blow) for just a few short years, in residential mortgages of all things, will make me rich for many many years to come! See you in court!
xoxo,
BK attorney
Posted by guest , Sep 14, 2008 11:26AM
@106
Wall Street Banks don't go bankrupt. It's bad for everyone.
I think there is only a slim chance that Fuld will use bankruptcy to try to extract a better deal from the consortium. He can't afford to overplay his hand this time.
All bondholders will have to take a haircut in order to salvage any value.
Posted by guest , Sep 14, 2008 11:33AM
these banks are willing to buy & hold the 85 billion of toxic waste so not to have a mark to market of their many more billions of toxic securities. Whats another 100 billion if it buys you more time. Hope is not a strategy.
Posted by beentheredonethat , Sep 14, 2008 11:36AM
@111
They don't have the cash. Secondly, there carrying the same toxic shit on their own books already......its a spiral.
Posted by guest , Sep 14, 2008 11:38AM
I'll have a Hope burger with a side of Change fries, please.
-B. Obama
Posted by guest , Sep 14, 2008 11:39AM
Pressure from asian markets? Huh?
http://tinyurl.com/6ffodo
Posted by beentheredonethat , Sep 14, 2008 11:40AM
@110
Wanna bet? It's certitude like that that got us here.....
Posted by guest , Sep 14, 2008 11:41AM
mr. fuld can and will overplay hand (if you know him like i know him you would agree). u c he knows that the only reason
we have these proceedings is to protect players from an armageddon monday (an inevitable fate mind you). 2 b clear, while he ran out of time, all others are in cue, including gs with high tier 3 ratio which would be greatly stressed by leh, aig and mer, not to mention probable first in line c!
Posted by Finnegan , Sep 14, 2008 11:41AM
It would be nice if they could force a comprehensive solution to several bank's bad asset problems, instead of spending the fall season with panics every other weekend.
Or let it all go and make the country face reality.
Posted by guest , Sep 14, 2008 11:43AM
@115
Don't blame me, blame the Fed and Wall Street for this mess.
Posted by guest , Sep 14, 2008 11:44AM
http://socializedlosses.blogspot.com/2008/09/just-making-stuff-up.html
Sunday, September 14, 2008
Just Making Stuff Up
Both MarketWatch and Dealbreaker are reporting various pressures on making a deal happen with Lehman before Asian markets open for Monday trading.
Here's the problem: Major Asian markets are closed on Monday
Japan: Respect-for-the-Aged Day
China: Mid-Autumn Festival
Korea: Harvest Moon Festival
Hong Kong: Mid-Autumn Festival
Just which Asian markets are causing pressure? This tells me that reporters (or their sources) are just making stuff up to sound like they know what is going on.
So if a deal happens, it has very little correlation with the stories that are currently being published.
Posted by guest , Sep 14, 2008 11:46AM
luke, "...but i'm not afraid!", yoda, "oh, but u will be, u will be!"
Posted by guest , Sep 14, 2008 11:49AM
Singapore is open tomorrow. As is Sydney - is that Asian or what?
Secondly that bike is worth nothing unless and until someone makes an offer for it.
Nothing, but nothing, has an intrinsic value.
Things have a cost to extract or make but that does not bestow value
Posted by beentheredonethat , Sep 14, 2008 11:50AM
@119
That would leave Australia, NZ, Malaysia, Singapore,. Are you not able to execute there? Because very hedge fund in the world is............
Posted by guest , Sep 14, 2008 11:51AM
anybody got the conf line numbers for any of the Lehman calls today? not seeing the invites in my Outlook...
DF
Posted by guest , Sep 14, 2008 11:52AM
The hidden story why bailouts:
NOt the single company is the reason, THE CREDIT DEFAULT SWAP MARKETPLAYERS ARE BEING RESCUED..
about 60 TRILLION USD NOTIONAL IS THE CDS MKT mkt share: 40% US Banks
BearStearns: JPM was the biggest CDS Seller / protection Giver...
see OCC www.occ.treas.gov (US Commercial Banks supervisor; INVESTMENT BANKS NOT CONCLUDED HERE !)
LEHMAN: BoAmerica the biggest CDS Seller.. so BoA will get involved
WACHOVIA the next because of Golden West takeover 2006 (26 bn USD paid)
120 bn Mortgages with ARMs !!!
and there was no Goodwill til now.
Looking for 15-25 bn writeoffs !!
AIG Now also under fire !
Ameican Express: with their Credit Crads / loans the next 6 month left
Subprime Home mortgages then around 12-18 monthe residential mortgages and the 18-24 mth CREDIT & CAR LOANS
FINANCIAL ARMAGEDDON
God save :
United Socialist States of America
Posted by beentheredonethat , Sep 14, 2008 11:55AM
@121
Oh, my. Are some people in for a rude awakening tomorrow on that score. I can see people going through LEH's books and coming across plenty of things and saying, "Not one red cent."
Posted by guest , Sep 14, 2008 12:10PM
@125 Quite!
"South Sea Bubble" comes yet again to mind.
Wish I had some spare cash to buy property!
Posted by beentheredonethat , Sep 14, 2008 12:10PM
CNBC is saying talks are focusing on dealing with the fact there is no deal and what to do when the markets open....
Mtop. Maybe Fed is serious about no backstop. they better be...........
Posted by guest , Sep 14, 2008 12:24PM
What specific impact will this LEH have on oversea's markets? I'm reading about the "opening overseas", and I'm reading this as currency markets.
If I'm understanding correctly, the psychological impact of LEH's demise will unleash confidence failures in the US Fed/Treasury system. Is this the implication? And, in turn, this will set up waves of US-dollar selling versus other currencies, but mainly against EUR?
Its irrelevant that certain Asian markets are closed, their currencies will trade anyway in London anyway at 3am. US EST.
Posted by guest , Sep 14, 2008 12:26PM
@126 Interesting... Thanks for the insight into history... So what is your play?
Posted by guest , Sep 14, 2008 12:29PM
I think the Fed is playing some brinkmanship regarding their stance on no backstop. William McDonough, the then NY Fed governor, did exactly the same thing when he told the group of Wall Street CEOs that there would be no Fed funds available to rescue LTCM.
Paulson, Bernanke, Geithner are trying to force Wall Street to come up with a market solution for Lehman.
But this time, the problem is so much larger that I won't be surprised if the Fed does an about-turn on this.
Posted by guest , Sep 14, 2008 12:32PM
@129 Oh wish I was a player. I'm just agrandmother wondering if her stbx sil is worrying about the possibility of losing his job at LEH or pleased because it will mean less alimony to my daughter!!
I thought these ups and downs were all a normal part of free rein economies.
Posted by bank_teller , Sep 14, 2008 12:37PM
LEH has the best bankers, clearly. That should be worth a good $100 BB at least.
http://www.businesssheet.com/2008/9/feisty-lehman-bankers-already-insulting-potential-savior-bank-of-america
Posted by guest , Sep 14, 2008 12:44PM
@131 I understand, I was part of the recent debacle over at Bear... I have landed with another firm that appears to be an arms length away from the current issues...
Posted by tduncaneu , Sep 14, 2008 12:44PM
Is the sticking point just the bad assets - or bad assets and Fuld's insistance that the equity holders get something other than zilch? If the latter, maybe stockholders own $30bill in bad assets tomorrow and Barclays or BAC own the rest just for having the capital to keep the firm in business.
If the number for yucky stuff is really $85bill, then it's the feds who are gonna own it, one way or the other.
Posted by guest , Sep 14, 2008 12:46PM
@129 and 131
Lehman spouse here. Waiting and wondering too as spouse is in the office...
@131 if I may ask, what area are you in?
Posted by guest , Sep 14, 2008 12:48PM
@132
Isn't that kind of confidence aka arrogance a required entry on the banking CV?
Posted by guest , Sep 14, 2008 12:56PM
What some call "toxic" assets could be just frozen, and there's no market for these loans.We don't know to what extent they are non performing or not, but if they are yielding junk rates, a bad bank structure is a fine vehicle for any PE investor with a 5-7 yr time horizon.Throw in some warrants...hey, another CDO!.... and there should be an equity kicker if over time, the mortgages and loans find a higher price level.Price them like a strip coupon and they could be attractive to a consortium of long dated lenders ie pension and insurance cos.
Posted by guest , Sep 14, 2008 12:58PM
@ EVERYONE
Guys;
Can anyone possibly explain the emergence of an $80b figure from LEH's "Good Bank/Bad Bank" scenario and connect it to the $80b figure in the "Super SIV Fund" mentioned here:
http://74.125.45.104/search?q=cache:_zC3KSzioo8J:www.city-journal.org/html/eon2007-11-08ng.html+super+SIV+plan&hl=en&ct=clnk&cd=5&gl=us&client=firefox-a
Circa 11/08/2007
Posted by guest , Sep 14, 2008 12:58PM
@ EVERYONE
Guys;
Can anyone possibly explain the emergence of an $80b figure from LEH's "Good Bank/Bad Bank" scenario and connect it to the $80b figure in the "Super SIV Fund" mentioned here:
http://74.125.45.104/search?q=cache:_zC3KSzioo8J:www.city-journal.org/html/eon2007-11-08ng.html+super+SIV+plan&hl=en&ct=clnk&cd=5&gl=us&client=firefox-a
Circa 11/08/2007
Posted by guest , Sep 14, 2008 1:03PM
Asian markets on holiday? So what. Has anyone ever heard of the futures markets? They open at 6 eastern just as they always do.
Posted by tduncaneu , Sep 14, 2008 1:04PM
@138 Random
Posted by guest , Sep 14, 2008 1:05PM
So it's $50 bil in assets plus $35 bil in fresh equity to make this viable? It's structured like a REIT,which maybe what it will become.
Posted by guest , Sep 14, 2008 1:09PM
nytimes: Breaking News 1:02 PM ET: Barclays Says It Has Walked Away From Talks With Lehman
Posted by guest , Sep 14, 2008 1:14PM
@143 cnn has same
Posted by guest , Sep 14, 2008 1:20PM
@143
i can't find that report?
Can anyone tell me why it would be in any buyer's interest to bid for LEH now rather than wait for liquidation?
Posted by guest , Sep 14, 2008 1:21PM
Daily Telegraph: Barclays walks away from deal to rescue Lehman Brothers
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/09/15/bcnbarc115.xml
Posted by guest , Sep 14, 2008 1:24PM
@146
Thanks for the link
Posted by guest , Sep 14, 2008 1:25PM
NYT: Barclays Backs Away as Lehman’s Options Dwindle
http://www.nytimes.com/2008/09/14/business/14lehman.html?hp
Posted by tduncaneu , Sep 14, 2008 1:28PM
Interesting, the story says they walked even with the assumption that bad assets would be isolated. They did not want to be on the hook for counter-party risk. That woud indicate deal over.
Plan B. Receivership and bankruptcy. Who will be hurt by everything being frozen for at least 60-90 days. I believe applies to all except for customer brokerage funds.
CDS settlement business could be best in US right now next to foreclosed RE management.
Fasten seat belts we are expecting turbulence.
Posted by guest , Sep 14, 2008 1:28PM
http://money.cnn.com/2008/09/14/news/companies/lehman_brothers/index.htm?postversion=2008091413
Posted by guest , Sep 14, 2008 1:30PM
... bank of america?
Posted by guest , Sep 14, 2008 1:32PM
150:
I can just see the guys in Greenwich sitting around the grill salivating at the profits made shorting LE and the profits to be made shorting MER, Wamu and AIG.
It's a new era - shorting.
Posted by guest , Sep 14, 2008 1:34PM
CNBC: Barclays Ends Talks to Buy Lehman; BofA Still Involved
http://www.cnbc.com/id/26704405
Posted by guest , Sep 14, 2008 2:19PM
Even the BBC now says Barclay's is out!
It's all brinkmanship though isn't it?
Posted by guest , Sep 14, 2008 2:29PM
This just shows what a load of rubbish people come out with. This story seems to indicate that they have a scoop with Barclays which is obviously is not the case. Is that the case? Not even close.
Posted by guest , Sep 14, 2008 2:41PM
@155
no one knows what is going on
Posted by guest , Sep 14, 2008 3:00PM
Those in the meetings do but they won't advertise it until they want to.
Posted by guest , Sep 14, 2008 3:29PM
Lehman is bankrupt already. If this deal goes through, by Monday morning there won't anything left to call Lehman. The good stuff will be called BofA, and garbage will called Company X, which will be owned by what seems to be a large collection of international banks. LEH stock will be worthless.
What's important to note here is how bad things really are. Banks are taking on the toxic debt of a totally failed brokerage, and they get NOTHING for this ... HUH?!? BofA (and possibly Barclay's) gets a sweetheart deal?
WTF?!?!
The only explanation is that the total collapse of the world's financial system is being prevented (delayed?) with this move. BTW: this was Paulson's rationale for the awful deal for Bear Stearns'.
As always, the key is to prevent the mark-to-market of all toxic assets all at once. By putting all this garbage into Company X, nobody has to know what it's really worth. Same with Bear's junk; hidden safely away in the Fed's vaults. (Only who on earth would steal it? You could put it in the middle of Consitution Ave. and it would be safe.)
But how can this possibly work long term? We may see this deal happen Monday, but what happens on Tuesday when Merrill or AIG or WAMU (or all three) go down? Who's going to step up and buy the toxic garbage then?
It is likley that Paulson has A LOT of suck right now because he bailed out F&F's bond holders, saving all these banks' collective asses. A week later it's their turn to pony up, right?
We buy an extra week of what? Denial?
My question is, what do they know that they are willing to go to these lengths to prevent the collapse of a single Wall St. firm? Do they know how bad this would be, or are they as clueless as we are?
Posted by Porter , Sep 14, 2008 3:35PM
Very interesting what would be the outcome. Anybody aware from the US industry what else will come as bailouts and what the volume of further collapses might be? Things remember me much of what has happenend in Japan. Does anybody know what Warren Buffett´s opinion is in these days?
Posted by guest , Sep 14, 2008 4:33PM
Warren Buffet stopped insure american banks' deposits just 2-3 days ago )))
Posted by guest , Sep 14, 2008 4:35PM
Warren Buffet stopped insure american banks' deposits just 2-3 days ago )))