Dick Fuld plans to testify that not only did the infamous “Repo 105″ transactions play no part in Lehman’s bankruptcy, but they were so immaterial that he never knew about the accounting treatment until the bankruptcy examiner unearthed them.
In his prepared testimony, a copy of which was obtained by Deal Journal, he said the press has “unfairly vilified” Lehman by claiming the Repo 105 transactions were meant to hide the firm’s toxic assets. Instead the accounting gimmick, which Fuld says was totally legal, involved highly-liquid investment grade securities, mostly Treasury bonds.
Meanwhile, several hedge funds that supposedly shorted Lehman shares before the bankruptcy have been subpoenaed by investigators. They include SAC Capital, Och-Ziff Capital Management, Greenlight Capital and Citadel Investment Group.
Full Text of Fuld’s Statement: (Courtesy of Deal Journal)
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Kidding, no one would ever use a term like that in the office. What the guy actually called them was “honkers.” As previously discussed, Nomura’s acquisition of Lehman’s internal operations has not gone as smoothly as everyone had hoped. The Lehman employees are very difficult, all but refusing to submit to their new employer’s way of doing things. Particularly the womenfolk. They spent the summer slutting it up in sleeveless shirts, and, despite being told, pointblank, that women exist to serve, they still just seem to not get it. So I guess it shouldn’t come as a surprise that they’d raise a ruckus over pretty standard business practices like having their jugs referred to as “honkers” in front of colleagues, and it be suggested that their time would be better spent tidying up the house. What’s next, panties in a bunch over being told to get back in the kitchen? And is “bazonkas” not okay anymore? (Serious questions.)
Maureen Murphy, 30, alleges that one woman trader had her breasts referred to as “honkers” during a meeting. She also claims that a male colleague at the bank said women “belonged at home cleaning floors”.
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After happily watching Lehman free fall into bankruptcy and cherry picking the remains, Barclays is now on the hot seat for screwing Lehman a second time by overstating the liabilities it was assuming and later booking a $4 billion gain. Barclays capitalized on the fact that, unlike Lehman, it was not in bankruptcy and still had shareholders to answer to when it estimated the liabilities associated with acquiring Lehman’s investment banking and capital markets units. But a US bankruptcy judge has now ruled that Lehman gets to take a look at Barclays’ math to determine if things like accrued bonuses were ever paid out or simply pocketed.
Lehman Wins Right to Probe Barclays on Alleged Profit [Bloomberg]
Lehman simply can’t quit Mark Walsh. Even though the former head global head of real estate helped bring down the firm through a series of ruinous transactions, Lehman’s estate selected a group headed by Walsh and several of his colleagues to manage the real estate focused PE arm he previously oversaw, Lehman Brothers Real Estate Partners. Adding credibility to this decision is the Federal investigation into whether or not Walsh’s team improperly valued Lehman’s CRE holdings to bolster the firm’s sheet and a civil suit on behalf of New Jersey pension funds claiming Walsh and his team defrauded them by misrepresenting Lehman’s real estate portfolio.
Lehman Property Boss Returns [WSJ]
Standard & Poor’s has now come to Lehman Brothers’ defense, saying that the counterparty credit rating of Lehman remains high. S&P gives Lehman a counterparty credit risk rating of “A/A-.”
S&P said the persistent and ongoing pressure on Lehman’s stock price in recent days has not hurt Lehman’s liquidity, funding and client business. But the rating firm expressed concerns that these pressures complicate the operating environment for Lehman, which was downgraded in June.
“We are concerned that ill-founded and persistent pressures on Lehman’s stock unnecessarily prolong what is already a very challenging business environment,” it said.
The Friday before Bear Stearns needed to be bailed out by the Federal Reserve arranging its acquisition by JP Morgan, S&P lowered Bear Stearns counterparty credit rating to BBB from A, and its short-term rating to A-3 from A-1.
S&P says Lehman counterparty credit profile solid [Reuters]
Bill Gross just appeared on CNBC to crush the rumor that Pimco was diminishing its exposure to Lehman Brothers either by reducing its trading positions with Lehman or reducing any investment in Lehman. In his comments he said that Pimco’s willingness to continue to deal with Lehman Brothers and other potentially troubled securities firms is influenced by the Federal Reserve’s “temporary” broker-dealer discount window.
Gross said that the discount window takes away any solvency risk on the part of Lehman, although he said that doubts about the business model of investment banks is most likely depressing Lehman’s price. The reduction of leverage across Wall Street and the decline of businesses that were, in essence, dependent on a booming real estate market and attendant mortgage boom has raised serious questions about the future profits of investment banks.
This morning Lehman was down by 15%, about half of the decline at Fannie Mae. Lehman’s credit default swap spreads blew out 35 basis points to 320 basis points. That means it’ll cost you $320,000 per year for five years to insure $10 million in debt.
CNBC mentioned a rumor circulating about Lehman but then got all coy about it, the Jamie Dimon-NY Times-Vanity Fair fatwa against rumor mongering apparently having an effect on people squeamish about the threat of being sent to pound-you-in-the-ass prison. Luckily we are not those people. After the jump, we lay it on you.
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Lehman Brothers is still under “temporary review” by Platts but yesterday it traded an oil contract during the end of day price-setting period that Platts uses to set bench-mark prices, according to Reuters.
On Monday Lehman was barred from participating in the daily-price setting process, which reportedly block’s Lehman from influencing prices and may prevent them from buying certain contracts. Sources say Platt’s review stemmed from credit quality concerns.
Although counter-parties are still free to trade with Lehman, sources say the reports that Lehman was barred due to credit concerns could encourage traders to shy away. Decreased confidence in Bear Stearns’ quality as a reliable counter-party helped led to the demise of the bank.
As Reuters notes, this is all a bit mysterious. “Sources had said earlier this week the review was due to credit issues but could not be more specific what those issues may be and it remained unclear why Platts would have any specific knowledge of Lehman’s credit condition,” Reuters writes.
Lehman has been quietly downplaying this story. Platts refused to either confirm or deny the reports, which isn’t exactly helping Lehman in this nervous market.
Lehman trades on key Platts oil trading platform [Reuters]
After last week’s unanswered question about how–and whether–Lehman Brothers would be able to pay its employees as compensation costs for the early months of the year outpaced revenues, Lehman is awarding its employees with mid-year stock bonuses, according to the Wall Street Journal. Employees will get the equivalent of 20% of the stock award they received in 2000. They’re calling it a “downpayment” and a reward for employees who have stuck it out at the firm.
Those employed at the Fraternal Order of Lehman had better learn to love stock bonuses because a much bigger proportion of this years bonus will be in stock, Bloomberg reports. The ratio of stock awards will rise to a maximum of 65 percent of total compensation from 50 percent, according to some “person with knowledge of the matter.”
Lehman employees to get mid-year bonuses [Market Watch]
Lehman Raises Stock Portion of Staff Pay, Person Says [Bloomberg]
Shares of Lehman Brothers traded up this afternoon after Morgan Stanley said it saw scenarios where Lehman’s stock could rise as high as $30 from it’s present $20 levels. But concerns about its future linger, both inside the firm and with investors. Many at Lehman Brothers are concerned that chairman and chief executive Dick Fuld’s insistence that the company remain independent and resistance to further deleveraging could be foreclosing important options for the company’s future.
In the era of increased capital requirements and regulations that many foresee for Wall Street, consolidation may be the only way for investment houses such as Lehman to survive and thrive. But Fuld’s very public statements, backed up recently by Dick Bove’s assessment, may be closing off that avenue. If a merger with or acquisition with another financial institution does become necessary in the future, Lehman could be in a far weaker position.
This sentiment is echoed by both Lehman insiders and investors. Of course, those owning shares of Lehman might be making these statements in order to create an acquisition-expectation premium in the stock, so they should be viewed with caution. As crazy as it might seem, it’s not just short-sellers who can benefit from gossiping about financial stocks.
