Lehman just declared
the largest loss in its 160 year history. Even analysts who had been expecting a big bath were shocked. The stock value nearly halved in trading this morning. (Side note: if you doubt insider trading takes place, look at what happened yesterday. Clearly a number of people got a hint of those numbers in advance.) The company announced that its spinning off art of its operations to raise cash. Nonetheless, don't be surprised if they turn up at treasury's door soon, asking for a handout to stave off a liquidity crisis.
"(Side note: if you doubt insider trading takes place, look at what happened yesterday. Clearly a number of people got a hint of those numbers in advance.)"
Do you think that's why investors dumped the stock yesterday, or was it because it looked like Lehman's discussions with the Korean Development Bank to raise capital had fallen through?
Speaking of insider trading, what about the lack of a dive in Fannie and Freddie shares last Friday? Looks like Treasury did a good job of controlling leaks.
couple points
a) it almost halved YESTERDAY. This morning it was up 27% premarket before results on rumours of a bid from KDB.
b) The operating results are in no sense driving the stock price anymore. It is all what the marks of the residential mortgages AND what prospects for capitalisation exist (take-out, spin off, stake from abroad etc).
c) Liquidity isn't really the issue with the Fed window open now, it is more how the franchise is holding up through the furor. If clients walk, then it is an issue.
It seems to me that a whole slew of executives from Fannie Mae, Freddie Mac, Lehman, and other financial companies should be out on the sidewalk, drumming for pennies.
"People who go broke in a big way never miss any meals. It is the poor jerk who is shy a half slug who must tighten his belt."
And the people who lose other people's money for them just keep on doing it!
The fundamentals of the economy are strong. Or,
We need McCain and Palin and we need them NOW!
The company announced that its spinning off art of its operations to raise cash
Gee, do you really think teaching others in the "art of the subprime mortgage" is going to raise much money? ;-)
Somewhat related, something I've been wondering about. As part of some work I've been doing recently, I've had some discussions with a decent-sized, privately-held investment bank. Obviously I'm not privy to its financial results, since it's privately-held, but I know it has been expanding recently and has taken on a lot of staff in the last year or two, so it seems to have done quite well while a lot of its larger, publicly-traded counterparts have been losing money. I wonder if many other smaller, privately-held investment banks may be in similar positions. If so, that would have some interesting implications.
So the bosses of Lehman's would not offer the Koreans good enough terms for the KDB to recapitalise the bank. Presumably the bosses were worried that the shareholders would throw them out for giving away so much. So now the shareholders or the US Treasury will throw them out for not saving what they could by accepting the Koreans' terms.
It would be comic, except that many of banks in the USA and Europe are undercapitalised, and that is why they don't trust one another's credit worthiness. That lack of trust is the driver of the general credit crunch. And there are an awful lot of such banks who are not offering good enough terms to the people (in the countries with strong trade surpluses) who have the free capital to invest in them. Dresdener turned down a good Chinese offer the other day; and Commerzbank who took them over will find its capital base even more stretched as a result.
Great! With Lehman dumping art, now I can starve even more. I need a government bailout soon.
LEH will not be bailed out by Treasury or the Fed. They will sink or swim by market whim. No apparent buyers, but nobody willing to pull the plud as GS did BSC. Given the this mornings call, and the fact that the company is trading below NB's book value alone I have to think a hostile offer is coming. Any bid for the entire company, at these prices, would be considered hostile by Fuld.
Joe nailed it. Bad analysis Meg.
Also, LEH's reported loss was not as bad as numbers bandied about late last week and early this week by leading banking analysts.
I think you have the causation backwards. Lehman went ahead and reported because the rumors surrounding them were reaching a fevered pitch and they were in danger of being dumped as a counterparty.
Furthermore, rapid declines in share value can spook brokerage account holders and encourage a run.
In short Lehman reported because they had been tanking. They didn't tank because of this report.
Hey Megan, AIG is announcing it's secret plan to turn things around soon--we took a commeasurate pounding yesterday for the same thing. Any idea what it's going to be? Does the Atlantic need an underwriter?
If I were a mortgage holder about to lose my home, I'd definitely try the "John Doe, 142 Maple St, is too big to fail! Bail me out!" card.
The stock value nearly halved in trading this morning
I'll add to the chorus that you may want to correct this.
They're dead. Their business model has failed. It isn't that they are any worse than any of the other giant broker dealers but they have drawn the short straw, like Bear Sterns did, so it bye bye time.
Not to worry. Everything is under control. The bottom is almost in. The high priests of finance, Paulson, Bernanke and the rest are in control. They are in control of the free market. For above all else the ideology of free markets says that a handful of powerful people and institutions control the markets.
The fix is obvious. More credit, more liquidity. More credit at low low rates that is. The Treasury has stepped in to provide the liquidity and who knows, maybe congress will even appropriate the money but no matter. In such emergencies during war time that formality is barely necessary. The Fed will surely cut rates next week. That's always good news. Just look where low rates have taken us. We live in a paradise of plentiful jobs and stable prices. The $4 trillion or so 'invested' in real estate in the US has made everyone wealthy. It's a beautiful thing.
So don't worry. Everything is under control.