Lehman Brothers

Bove says Citi fears are overblown

Jim Kim — Thu, 20 Nov 2008 21:14:50 -0500

"It would take a Depression every bit as large and long as the 1930s debacle to shake this company's viability." So wrote analyst Richard Bove about Citi. He thinks the fears are overblown, even as he admits he has gotten several calls from people wondering if Citi was about to fail. There was a time not so long ago when the idea of Lehman Brothers failing seemed farfetched. While Bove recommends buying the stock, few people seem to be like minded. The recent sell off has been tremendous, and it could get worse if the stock dips below $5 a share. All this is happening even with the TARP injection. The banks will no doubt face pressure on all sorts of debts in 2009, chiefly consumer credits, and toxic assets. But the bank sports a 10.5 percent tier 1 capital ratio. That's plenty of cushion. Still, while the bank may survive and the stock may even bounce a bit, people are right to wonder about the future of the bank.

For more:
- here's an item in the New York Times

Wachtel Lipton on Lehman Brothers

Jim Kim — Thu, 13 Nov 2008 14:17:01 -0500

People will be debating the Lehman bankruptcy for years. Wachtell, Lipton, Rosen & Katz has weighed in with a memo to clients covering some lessons learned. Chief among them: Many of Lehman's counterparties "thought they were somehow protected form such a disastrous outcome--but were actually not protected at all," notes the New York Times. Article

Lehman Brothers CEO to step down by end of year

Jim Kim — Wed, 05 Nov 2008 19:12:47 -0500

At least he won't get a bonus. That's what a lot of former Lehman Brothers employees, no doubt, thought when the news broke that Richard Fuld, the controversial CEO of the bankrupt investment bank, will step down before the end of the year. He will stay on as chairman however to aid the bankruptcy process. He the bank has made clear he will not be getting any severance pay or bonus. He's still a wealthy man, but a lot less wealthy than he would have been if the firm hadn't gone belly up. He's wracking up quite a legal bill in any case. He and other Lehman Brothers execs remain at the top of the list of most likely to face enforcement action. At least a dozen execs have been subpoenaed, the AP reports. The amount of private litigation the bankruptcy spawned has been massive. He certainly left a legacy.

For more:
- here's an AP article

BlackRock's role in the crisis

Jim Kim — Fri, 31 Oct 2008 11:39:06 -0400

BlackRock CEO Larry Fink is dominating the headlines like he did a few months ago, when it seemed like he was a candidate for every high-profile open CEO position. His firm is playing an active role as the bailout industry gears up. BlackRock has been hired by AIG, Lehman Brothers, Fannie Mae and Freddie Mac--not to mention the Treasury Department.

Fortune notes the irony: "Keep in mind that 25 years ago [Fink] was an early and vigorous promoter of the CMO (collateralized mortgage obligation). Today the CMO and other asset-backed securities have become the monsters responsible for the credit crisis."

In some ways, that's unfair. You can't blame him for the recent decisions at some investment banks. He has his company poised to profit from the bailout process, and that strikes some as an enviable position.

For more:
- here's the article

Silver lining: More restructuring business

Jim Kim — Wed, 29 Oct 2008 12:40:50 -0400

A lot of top Wall Street banks wanted to get into the restructuring business. Morgan Stanley made a move, hiring a big name from Lazard. Goldman Sachs added Jamie Sprayregen, a former Kirkland & Ellis bankruptcy attorney. Harvey Miller was part of the restructuring group at Greenhill & Co., though he has since returned to Weil Gotshal. Even Lehman Brothers sought a piece of the action, until it fell into bankruptcy. There's a lot of money to be made as an adviser and as a lender, notes IDD. Of course, the issue this time around is that there is not a lot of DIP and other financing available. Still, it is a rare growth market. The advantage may go to the boutiques and specialists.

For more:
- here's the IDD article

Related Article:
New era of independent advisers dawning?

As securities industry drowns, bonuses remain unsinkable

Molly Bernhart — Tue, 28 Oct 2008 11:00:28 -0400

Stocks are plummeting, securities firms are toppling, a $700 billion government bailout is underway and Americans are furious over executive compensation. But even as financial markets flounder, bonuses are unsinkable.

Merrill Lynch, which has seen a 70 percent drop in its stock this year, is dedicating $6.7 billion to bonuses. Amazingly, some employees at now-bankrupt Lehman Brothers will get the same bonus as last year. Goldman Sachs and Morgan Stanley, both of which are still profitable, will spend $13 billion on bonuses this year. For some firms, this is an overall or significant decrease in bonus spending from previous years, but higher-level employees will most likely not feel the effects of the squeeze.

Barney Frank, chairman of the House Financial Services Committee, has been outspoken in his opposition to bonuses during such bleak economic times. He believes a moratorium should be placed on bonuses--an action that would eliminate the argument that bonuses are necessary to keep companies competitive for recruiting.

"I'm just flabbergasted that the financial community has failed to show any sense of leadership on this issue and doesn't seem to understand how angry people are at them," said Nell Minow, editor of Corporate Library, a Portland, Maine-based corporate-governance research firm. "They are just a bonus away from having the villagers come after them with torches."

For more:
- read the entire Bloomberg article

Should Lehman have been saved?

Jim Kim — Mon, 27 Oct 2008 15:11:32 -0400

We'll be debating this for a long time: Would it have made any difference if Lehman Brothers had been "saved" by regulators the way they saved Bear Stearns? Would it have prevented additional carnage? It's tempting to say the regulators got it wrong by letting it fail. The extent to which Lehman was involved in the CDS market, which has rippled far and wide, would suggest that the company was "too important to fail," as was Bear Stearns. But one could easily argue that the CDS market machinery has absorbed the bankruptcy as well as it could have, and the government had to take a stand. It had to let someone fail. This is still capitalism, after all. Morgan Stanley, most likely, would have run into issues at some point, and Goldman Sachs would have converted anyway.

For more:
- here's an interesting look at the issue from Portfolio

Another credit crunch victim: analysts' credibility

Jim Kim — Fri, 24 Oct 2008 13:22:53 -0400

A poster on Seeking Alpha takes analysts to task for what he considers really awful performances as of late. There's a been a lot of talk about how inaccurate analysts have been in their forecasts. The post notes that for the second quarter, Wall Street analysts accurately predicted earnings just 6.7 percent of the time. That was the worst showing in 16 years. Merrill Lynch's highly rated Guy Moszkowski was singled out for shifting his stance on Lehman Brothers four times between June 2 and June 11. But these are extraordinary times, especially in financial services, so perhaps we can cut the analysts a break. There were a few who were accurate in some cases, notably Richard Bove and Meredith Whitney. Financial services has always been a tricky industry, in part because the proprietary component was always something of a wild card. As the commercial banking model takes hold, will analysts' performances get better?

For more:
- here's the post

Synthetic CDSs starting to creak?

Jim Kim — Thu, 23 Oct 2008 13:08:06 -0400

People aren't sure what to make of the synthetic credit default swaps market. The media has been rife with stories suggesting that the market is creaking and may be the next leg down in the credit crunch. Some think it is inevitable that the same pain felt in CDOs that invested in subprimes will be felt by their counterparts that invested in CDSs.

No doubt, some banks have been really hurt. Susquehanna Bancshares has written off $17.5 million for such CDOs. This is not a market-breaking loss, but the issue is whether larger losses are to come. National Australia Bank has purchased some hedges to the tune of $60 million a year in cash. Do we need to fear another massive meltdown? There's a lot of nervousness as people anticipate credit rating downgrades, but when you stop and think about it, only seven entities have gone into default. Granted, Lehman CDSs were widely traded, but the majority of financial firms, which underlie the most CDSs, are safe from insolvency now. But at a time like this, that doesn't count for as much as we'd like.

For more:
- here's an article

Video: Cramer on Lehman's long, cruel tentacles

Dan Bowman — Thu, 23 Oct 2008 06:12:10 -0400

Check out the video below of Jim Cramer on TheStreet.com talking about Lehman Brothers: