The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings

“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”

Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.

Hewlett-Packard: The Advisers [Deal Journal]

The action in Lehman Brothers is more evidence about how unsteady markets are these days. Shares of Lehman Brothers fell nearly 10 percent early this morning. The rumor spread that the bank would make an announcement this morning, and many assumed (or encouraged others to assume) that it was going to announce more write-downs. This sparked rumors that Lehman Brothers could see a Bear Stearns-style run on the bank, with customers and counterparties bailing out. Options traders started snapping up puts, and shortly afterward the shares plunged.

"Much like the bets in the options market that predicted Bear's demise (please refer to my prior posts that pointed these out before the institution's near collapse), traders are betting that Lehman may be facing the same situation soon, in the next 22 days," the Mock the Market blog explains. "Nearly every out of the money put has traded furiously today, with a particular emphasis on the ap 20's, which have changed hands nearly 10,000 times today with several hours remaining in the trading day."

Lehman spokeswoman called the rumors "totally unfounded" and even blamed short sellers for spreading rumors. The market seems to have bought this line, pushing the stock back from its lows. Some are skeptical, however, noting that Bear Stearns made similar noises even as it plunged toward bankruptcy. Companies love blaming shorts and claiming that they are pushing down stock with rumors, but there's seldom any hard evidence of this. The media allows companies to get away with these claims without ever demanding that they substantiate the claim. Lehman's no exception.

"There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest," Kerrie Cohen, a spokeswoman for Lehman Brothers, said.

We know that the rumors weren't completely unfounded. Lehman did issue a press release today. Only it wasn't about losses. Instead Lehman announced that Mark Bourgeois had been hired as the new co-head of global institutional distribution. (That's an awesome banker name, by the way. Bourgeois.)

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?”

Lehman Brothers led the pack of financial stocks downward this morning, falling to six-year low as investors speculated that the firm might be vulnerable to a run-on-the bank similar to the one that brought down Bear Stearns. This worry continues despite Lehman having announced a new 3-year credit facility of $2 billion dollars and the Federal Reserve opening up the discount window to brokerages houses, a move many regard as specifically aimed at providing liquidity to avoid the fears that fueled the collapse of Bear.

But the pressure on Lehman’s stock continues. Lehman is leveraged more heavily than its Wall Street peers and it is a major player in the mortgage market, the source of much of the pain for Bear Stearns. It recently completed a round of 10% across-the-board layoffs, a move intended to show capital markets that the bank is serious about improving efficiency and cutting costs.

Lehman has yet to report any truly bad news . Its write-offs on the last two quarters of 2007 added up to about $1.6 billion, far below the write-off numbers of some of its peers. But this has ironically fueled market fears—many wonder if Lehman has more exposure than it has let on. Lehman chief executive Dick Fuld has attempted to reassure investors and employees. But the Wall Street Journal’s headline—Lehman Says Liquidity Is Fine—only served to remind investors of similar assurances from Bear last week.

More after the jump.

So if your Level 3 assets climb from 12% to 13% of your total assets, is that a good thing or a bad thing? Does that mean they are worth more or that you have more of assets that everyone suspects are probably worth less than you say they are? Does anyone understand what’s going on at Lehman?

To be frank, we certainly do not.

We at my apartment (so me and Marissa) have heard that the invasion of employee privacy by Wall Street firms has taken a bold step forward: hacking into employee Facebook accounts. According to a sometimes reliable, sometimes not source, the human relations department at a certain investment bank has been using creative technology to get into the profiles of current (and prospective) minions, to monitor their off (and on) the clock activities. This is bull shit and I'll tell you why: it would be one thing, if you and those with the power to get you fired willingly entered into a Facebook friendship, thereby granting them full-access to see what's a-poppin' in your personal life whenever they pleased. But this means that someone who doesn't even have the bedside manner to ask "You wanna do this" first, or worse, someone whose online friendship you've formally said no thanks to, can see that you've added "Boiler Room" to your favorite movies (sheep) and changed your status from "Billy is working at Bear Stearns" to "Billy is getting a public citation for having relieved himself on the sidewalk in front of Bear Stearns which he wouldn't have had to do in the first place if those FUCKS hadn't fired him." Anyway, try and guess which firm we're talking about via Facebook message (thereby granting me access to see your profile for one week even if we're not friends) and I will respond shortly.

Just how has referring to competitors as enemies whose “throats” must be “ripped out,” telling employees to act as though they are “at war,” and, on at least one occasion, making a visit to the trading floor to put his second-best earner’s tie through a shredder, in front of everyone, to make the point that “second best isn’t good enough” helped Dick Fuld to avoid the gigantic writedowns that have plagued Merrill, Citigroup and UBS, the hedge fund failures that have made a joke of Bear Stearns, and the accounting scandal that was Goldman third quarter earnings? How about because all of that is enough to scare the shit out of anyone, especially the people within arm’s length of the guy, into not fucking things up? Nobody wants to be the guy to tell “Gorilla” that things didn’t go so well this quarter, and while everyone else was having a pissing contest to see who could do the worst, Lehman’s minions were being intimidated into not having as horrible a Q3 as their “enemies,” if not necessarily an amazing one (earnings fell 3 percent, to $887 million, and there was a $700 million write-off). Even Mike Mayo, who’s intimidated by no one, gave the credit to Fuld, saying that the outcome was “helped by having one of the most consistent cultures on the Street—one C.E.O. for over a decade, a one-firm mentality and comprehensive risk management,” probably out of fear. Former colleague Stephen Schwarzman, who seems like the kind of guy who would be too petty to give someone else credit for anything, went out of his comfort zone to call Fuld “a survivor” and opine that “he’s got a sixth sense of when things are turning on you,” though, admittedly, Schwarzman’s praise-inducing intimidation could stem more from the height differential than anything else.

But a New York Times profile suggests that Fuld is losing his taste for human flesh, which could mean disaster for LEH. Examine the facts:

- When asked how he felt about “the war comment” from last year, Fuld shifted in his chair and said, “I don’t like the war comment…‘war’ connotes that we are trying to kill our enemies. That’s not the view that I want them to have.”

- After feigning offense at the accusation that he’s “mellowed,” Fuld “paused to collect his thoughts.”

- Then he said: “I think I have many of the same reactions; I just handle them differently…I’VE LEARNED, IN ALL FAIRNESS THERE IS ANOTHER VIEW.”

And the most egregious ?
- Lehman’s president, Joseph M. Gregory, says that Fuld “has improved” his attitude and “made it more comfortable for people to speak.”

This is a phenomenon the must be cut off at the knees (which the old Fuld would’ve already done, without compunction). It’s only a hop, skip and a jump from people not soiling themselves in your presence to Merrill Lynch.

The Survivor [NYT]

There’s no doubt that Planet LBO is a calmer place now than it was through much of the summer. But it’s not exactly terra firma yet. One of the shakiest deals in the pipeline is the buyout of real estate investment trust Archstone-Smith Trust. Lehman Brothers and Tishman Speyer are putting just $500 million of their own money into the $21 billion deal, with the rest coming in the form of bridge equity and debt.

Yesterday Lehman Brothers and Bank of America began their attempt to sell $3.15 billion of the $4.96 billion bank loans financing the debt. The loans consist of a $750 million revolver and a $2.4 billion term loan, each priced at 300 basis points over LIBOR. But word is that they are running into resistance from investors who are surprised the debt is not discounted more heavily.

Reuter’s Jonathan Keehner reports that banks are offering the term loan at 99 cents on the dollar, and this has some would be investors balking. As Keehner gently puts it, the one cent hair cut prices the loans substantially “above where other recent buyout financings have closed or been discussed.”
Not everyone is being so delicate.

"Archstone is a good company, it's got great assets, and bankers probably thought they could sell at this price," said a buyside analyst tells Keehner. "But my initial view is that a lot of deals are coming in at the mid-90s, and this is coming in at 99 cents on the dollar. It looks rich to me.”

We’re told the situation is beginning to look hopeless. And part of the problem may be Lehman’s conflicting interests. As both the buyer and one of the lead lenders—a dual role that many banks considered a win-win situation in happier times—Lehman may have put itself between a rock and a hard place.

Let’s go to the Keehner tape again, this time from Reuter’s Dealzone blog. “Either way Lehman takes a hit: as a principal, renegotiating on any terms could hurt potential profits. But by also banking the deal, Lehman otherwise risks having the debt clog its balance sheet or sold at a loss,” Keehner writes.

Archstone loans appear priced at pre-crunch level [Reuters]
Lehman’s double trouble in Archstone [DealZone]

Real estate blog Curbed recently sat down with an investor in the field to discuss whether or not Andre Balazs’ High Line-squatting Standard Hotel is symptomatic of a developmentification of Manhattan that’s turning the island into a place where only utterly lame (but sufficiently rich) people will live. A simple ‘yes’ would’ve sufficed, but the expert, perhaps going through some sort of personal problem or maybe having had the unfortunate pleasure of drinking at Joshua Tree last night, took it one step further.

Fuck it, I say. Manhattan is one big joke. I think they should let highrises go up anywhere at this point. What's the point of communities on the island anymore?

Everyone's so priced out, does it matter anymore?

If you want a neighborhood/community, move to Brooklyn.

Let Manhattan be just one big bullshit skyscraper. Tower of Motherfuckin' Babel. But for douchebags.

And the Lord spoke and said, "Let us make sure these douchebags do not understand each other, less they build a Tower of Douchieness. Let one douchebag not understand the other." And thus the languages of Goldman, Lehman, and Morgan were formed and the Lord saw it and it was good.

First of all, this tower already exists, and its name is Windsor Court (and on the UES, Dormandy). Second of all, and we’re just passing this along, analysts from Merrill Lynch and Bear Stearns would like to know, “Hey, why weren’t we included on that list?”

Investor Rant: 'Manhattan is One Big Joke' [Curbed]

Shares in Lehman Brothers are trading up this morning after the firm said its third-quarter earnings dropped only a wee bit from a year ago. The subprime lending crisis has hit its fixed-income business, which was down nearly 50%, but its equities trading, asset management and investment banking businesses were strong. The total price tag of the credit crunch last quarter came in at $700 million in lost revenues.

The bottom line numbers look very good, at least compared to what many expected. Net profit fell 3% to $887 million ($1.54/share) from $916 million ($1.57/share) a year ago. Revenue rose to $4.31 billion from $4.18 billion. Wall Street analysts had predicted Lehman would file $1.47/share on $4.23 billion in revenue, which means that Lehman performed better than expected. "Better than expected" are magic words for investors, and Lehman immediately jumped in futures.

The bulls are now running. And we hate to ruin the china shop party, but it looks to us like some financial engineering and unsustainable growth went into those numbers. We can't really make heads or tails of the tax accounting, for starters. But when we looked between the pre-tax and post-tax numbers, tt looks like they are recording something like $70 million in tax savings from second-quarter to third-quarter, which might be due to writing down the valuation of leveraged loan commitments and mortgage positions. Did someone call the guys in the tax department and ask them to find a way to tack an extra dime onto earnings per share?

How about those additional revenues from investment banking? If you think that's sustainable, you might want to come take a walk with me to lower Manhattan. I've got a bridge to Brooklyn Heights I'm looking to unload.

More importantly, Lehman says it recorded "substantial valuation reductions" on some fixed income assets but we're basically supposed to trust that they've marked these things correctly. Because, you know, Wall Street banks have done such a great job at valuing fixed income assets recently. Why would anyone get suspicious of their valuation models now? To put it differently, many expected that the credit crunch would cost Lehman more than $700 million. We're still not confident it hasn't.

We know that we're fighting the numbers here. Sorry for being so churlish. We were up till 4 am with insomnia last night. Which always makes us feel bitter. If you're going to be up to 4 am on a Monday night it should involve whiskey, women and at least a little bit of crime.

So we'll let Dick Fuld have the last word. He sounds like he had a better night's sleep than we did.

“Despite challenging conditions in the markets, our results once again demonstrate the diversity and financial strength of the Lehman Brothers franchise, as well as our ability to perform across cycles,” Lehman chairman Richard S. Fuld said in a statement.

Press Release [Lehman Brothers]

Lehman Beats Estimates, Limits Losses on Mortgages [Bloomberg]
The hit is light at Lehman [FT Alphaville]

The banks have won the first big show down with private equity.

Last night several news outlets, including the Wall Street Journal, reported that private equity giant Kohlberg Kravis Roberts has signaled a willingness to include a financial covenant for the bank loan portion of the $24 billion of debt needed to finance its purchase of First Data.

First Data was largely viewed as a test case for some of the biggest, and riskiest, of the highly leveraged buyout deals that are scheduled to close in the next few weeks and months. The banks had been asking the private equity sponsors of the deals for concessions on the terms of the financing, saying it was having trouble syndicating the debt due to recent concerns about debt levels by many investors.

More layoffs hitting very far from reaches of Wall Street banks. Lehman Brothers is showing the door to 850 lost souls, as it takes a step back from its global mortgage lending business and considers going coyote ugly.

(You know that one right? It’s where you wake up next to someone after a late night and consider chewing off your arm to get out of the apartment without waking him or her up. Like a coyote stuck in a trap.)

The cuts are hitting all over. The South Korean mortgage business is donzo. People are totally fired in the US and UK. And its not just subprime this time. It’s much broader mortgage business.

Lehman is one of the largest underwriters and traders of mortgage debt on Wall Street. It was basically running its own show until now, originating the mortgages, chopping them up into structured products, selling and trading the bonds. Well, that didn’t work out.

Despite the continued layoffs, everyone we talk to on Wall Street is totally sure that their own jobs are safe.

Except, you know, those media, retail and tech analysts at Merrill who just lost their jobs.

Lehman Brothers To Make Further Mortgage Layoffs [Wall Street Journal]

Such were the instructions of the Knights Who Say "Leh," as Lehman is rumored to have hired Jeb Bush as an advisor for its in-house investment arm. The Shrubberies have a long history of landing prestigious corporate gigs - from G.H.W.B.'s stint at Carlyle and G.G.H.W.B.'s (Grandfather of G.H.W.B.) run at Brown Brothers Harriman. The Shrubberies have so densely lined the upper echelons of corporate America, future Shrubberies are often added to make a path, and rest on the absence of laurels particularly.

Is this a sign that the banks are in desperation mode and looking to bring in people with Washington connections to strong-arm some (more) intervention to stem the oncoming tide of financial turmoil (or a sign that J.B. is going to wait until the Shrubbery name becomes a little less toxic and boost his campaign coffers to make a run in 2012)?

Jeb Bush: Lehman’s Secret Weapon [Deal Journal]

Lehman Brothers announced this afternoon that it is shuttering BNC Mortgage, one of its home lending units and, in the process, laying off 1,200 employees. This translates to roughly 4.2 percent of its total workforce (and: 4.2 percent less people clamoring for a Size M Super Mario Brothers t-shirt with a “LEH” superimposed onto the “Super Mario” at bonus time). The bank noted that current market conditions, wherein no one in their right mind is giving out subprime loans, have significantly reduced the demand for “resources and capacity in the subprime space.” Lehman will suffer only a mild hit of $52 million to third-quarter earnings. One Brother based in New York commented, “Big deal, it’s our lending arm and they likely sit in Wisconsin, no? BNC???” Familiarizing himself at this point seems somewhat moot.

Lehman Closes Subprime Unit and Lays Off 1,200 [NYT]

Although the recent job cuts in two Bear Stearns mortgage units have sliced through obscure places called Irvine and Scottsdale, rumors have started to circulate on Wall Street that the axe may soon fall closer to home. Some, including Jim Cramer, have predicted that there will be serious bloodletting in areas tied to credit markets and hedge funds.

“I think that many of these firms have as many as 30 percent more people than they need right now in these departments, and all of them will be cashiered by the end of the year. The lists are being drawn up; the HR people notified,” Cramer wrote recently in New York magazine.

Many on Wall Street scoff at the idea that they have anything to worry about but recent history of market downturns suggest otherwise. When the markets suffered in the years following the bursting of the tech bubble, investment banks and brokerages laid off as much as 25% of their work force. In just one day in the winter of 2003—it was February 7th, to be precise—Goldman Sachs announced that it would cut roughly 20% of its 220 options traders.

Last time around the cuts began with the brokers, since it was a downturn in the equities market that began the bloodletting. This time it may start with those parts of the investment banks directly tied to mortgages, leveraged buyouts and hedge funds and spread from there. As the mortgage market contracts, structured finance could also get hit, with both product and sales people losing jobs as the pool of underlying assets dries up. Derivatives traders may also find the axe swinging in their direction.

But enough of this vague speculation. It’s time for specific speculation. Where are the job cuts coming next? A recent item on DealBook doesn’t exactly name Lehman brothers as the most likely candidate. Except that it sort of does. “Bear Stearns is the nation’s 12th-largest home lender, according to Inside Mortgage Finance. The company, the fifth- biggest U.S. securities firm, ranks second after New York-based Lehman Brothers Holdings Inc. among U.S. sellers of mortgage bonds,” DealBook explains.

There’s also been talk of more cuts coming from Citigroup. Despite claims that they are still dancing in the LBO market, the music seems to have stopped. And a few seats are probably going to get pulled away, leaving some left standing. Like musical chairs but with your job.

Anyone care to irresponsibly speculate about who else might pick up the job cutting axe?

As Bear Cuts Jobs, Some Wonder Who’s Next [DealBook]
Bloody and Bloodier [New York Magazine]

Lehman Brothers is getting ground down by the rumor mill. It's up slightly just now but has recently been winning the race to the downside in the financial sector. The pricing on Lehman's credit default swaps is behaving erratically. All this on no official news.

We're hesitant to publish this kind of item, especially about Lehman. Last time we touched on Lehman rumors that bank wound up making a statement later that day denying the rumored troubles. But it's clear that something (or perhaps someone) is pushing Lehman down, down, down.

We keep getting emails from traders who have heard sketchy reports that Lehman will make a "major announcement" today. Keep in mind that so far the rumor mill has predicted a dire Lehman warning for three days in a row. Reality has stubbornly refused to cooperate.

Lehman isn't commenting right now. Anyone hearing about what might be going on?

Let’s say you’re a lady, working in the business world. You want to get ahead but doing so by conventional means like working hard is such hard work and we live in a patriarchal society that will always value the penis over performance. Just what’s a girl to do? The Wall Street Journal suggests putting on a pair of stilettos, because “high heels indicate power,” so much so that you might even morph into a man.

But it’s not just the added height that’ll get you to the top of our next bonus bumper. It’s that high heels offer an “inherent contradiction” (am I tall or am I short, I do not know). According to the Journal, ‘lettos “make us more fragile, but conquering them to stride alongside men in their sensible flats creates mystique.” This is not a joke—men will marvel—yes marvel— at the fact that you can walk just as fast as them—if not faster— in those things. Some—the ones who believe that hobbits are real—will scratch their heads and say, “She must have magic feet.” Ca-ching.

Kristen Bentz, who worked at Lehman Brothers for several years, recalls a senior executive stepping into an elevator, staring at her chocolate-brown crocodile four-inch pointy-toe pumps and asking, “Where do the toes go?” He was confused, scared and turned on. Ca-ching. (What he—Dick Fuld, one presumes—didn’t know, was that Ms. Bentz does not in fact have toes).

Super Lehman Brothers threw some D's on market rumors that it’s going to take a hit due to subrprime exposure this afternoon, according to CNBC. A (unsubstantiated, not necessarily untrue) rumor from this morning made stocks prices sad and ignited buying in Treasurys, traders said.

"The rumors regarding subprime exposure are totally unfounded," a Lehman spokeswoman told CNBC.

Lehman: Subprime Exposure Rumors 'Totally Unfounded' [CNBC]

We’re hearing from multiple sources that Lehman is about to make a major announcement about its hedge funds being damaged by subprime. Lehman would not immediately comment. Heard anything?

As always, you'll have to judge the quality of these rumors yourself. We trust you to exercise your independent judgment. At this point, it's all hearsay. Rumors of rumors. We have no reason to believe we're being intentionally misled here but sometimes rumors get started by people with agendas. We report rumors because, unlike a lot of others in financial journalism, we don't think you are too irresponsible or ignorant to be trusted with information of uncertain provenance or probity. Proceed with caution.