Is GSAM Underappreciated by Wall Street?

Goldman Sachs (GS-NYSE) certainly seems to be escaping many of the problems bedeviling its peers, and make no mistake about it, they will pick up market share from their faltering rivals in areas like Prime Brokerage and investment banking. Their traditional strength in commodities in also helping, and remarkably they have been in the open market, buying back stock.

With regulators ready to pull the plug on the temporary lending facilities, the weaker brokers will have to scramble to boost liquidity above recent historical levels. Lehman last tapped the lending facility on April 15th, but with Robert Steel indicating the window would be shut by roughly Halloween, at the latest, Goldman's peers are panting. Rivals are de-levering at the worst time possible, and are certain to fall further behind Goldman, who are operating from a position of strength. Sell when you can, not when you have to.

But somewhat lost in the shuffle is Goldman Sachs Asset Management (GSAM). Certainly they have had some issues with their underperforming Global Alpha hedge fund, but it is a drop in the bucket if you look at the big picture.

Asset Management achieved record quarterly management and other fees of $1.15 billion. Assets under management increased 18% from a year ago to a record $895 billion, including an increase of $22 billion during the quarter. Goldman Press Release

How much of Goldman's current equity market capitalization is attributable to GSAM?

Blow by Blow: A Short History of the Battle for Lehman Brothers

The recent battle over Lehman Brothers will someday make for an interesting case study. With trading in Lehman likely to settle down in the wake of their earnings release and conference call, it is time to review the episode, and hopefully learn something from it.

Bear Stearns kicked off the de-leveraging process on Wall Street a year ago when its credit based hedge funds imploded. Merrill Lynch grabbed collateral from the fund, and attempted to liquidate it, but met with little success. Wall Street was beginning to grind to a halt by the end of June.

Much of my focus at the time was with the situation and Bear, and the power struggle that was likely to ensue. Richard Marin, head of Bear's Asset Management operation was shown the door quicker than I would have imagined-certainly his personal blog did not help his case, given Bear's stringent compliance policies regarding electronic communication.

Warren Spector was next to go; Jimmy Cayne was quick to place blame, and brutally dispatched his heir apparent as he consolidated his grip on the firm. Wall Street was a mess in the heat of the summer, but a "V" bottom ensued, and perhaps some investors had bought the party line from Wall Street chieftains, who tried to reassure investors that it was all good.

High Noon for Fuld, Lehman Brothers

Will the coming week witness a resolution to the crisis and controversy swirling about Lehman Brothers (LEH-NYSE)?

Confusion over the Lehman's capital position and leverage ratios might finally be straightened out; both sides in the debate have been working with numbers and ratios that buttressed their argument, and comparing apples with oranges has added to the acrimony. Last week, shortly after Lehman's $6 billion capital raise was announced, rumors began to circulate that Lehman was discussing an additional capital infusion from various Korean interests, which certainly weighed on the stock as stabilization efforts failed and it traded through the $28 level. Strange days, indeed.

Too, many people apparently have trouble making a distinction between The Blackstone Group (BX-NYSE) and Blackrock, Inc. (BLK-NYSE). Blackrock participated in the capital raise last week and joined the "old guard" on Wall Street in defending Lehman's viability, but a story late in the day Thursday was largely overlooked, and likely responsible for the ramp in Lehman's ramp on Friday':

June 12th 4:49PM
CEO Richard Fuld is actively listening to offers for the beleaguered investment bank, including a possible bid by private-equity firm Blackstone for a 20% to 30% stake, CNBC has learned.

Meanwhile, BlackRock, the publicly traded investment management firm, is not interested in buying Lehman, a source said. CNBC

Lehman's earnings announcement and conference call are the big story Monday on Wall Street; for the second week in a row management is burning the midnight oil in preparation for conference call with its shareholders and the Street.

Happy Anniversary, Wall Street

One-year ago the great seeds of the great de-leveraging were planted:

June 14, 2007
A hedge fund managed by Bear Stearns Cos. is scrambling to sell large amounts of mortgage securities, a setback for a Wall Street firm known for its savvy debt-market trading.

The fund makes bets on bonds backed by mortgages, many of which are subprime, meaning they go to especially risky borrowers. Faced with losses on its investments, the fund, called High-Grade Structured Credit Strategies Enhanced Leverage Fund, together with a sister fund, is trying to sell about $4 billion in mortgage-backed bonds to raise cash, according to people close to the fund and traders who have been solicited. WSJ

A few days later Merrill Lynch decided to seize collateral from the fund and attempt to liquidate it, toppling the first dominos:

An auction Wednesday could come as a blow to the fund, known as the High-Grade Structured Credit Strategies Enhanced Leverage Fund, because it could spur additional sales of collateral assets from other worried dealers. A string of asset seizures would likely force the dissolution of the fund, and could effectively drag down the prices of similar securities in the market, creating losses at other Wall Street firms. WSJ

Wall Street spent the better part of the next month shrugging off the unfolding drama, but the nasty selloff in August was a hint of what was to come. The Street was slow to pick up on several themes, such as Angelo Mozilo and Countrywide, the skullduggery at Bear Stearns, and issues at Moody's.

There were some great trades there, if you were not asleep at the wheel.

Bear's Fund Is Facing Mortgage Losses
Wall Street Journal

Bids Wanted at the Bear
1440 Wall Street

Merrill to Bear: Drop Dead
1440 Wall Street

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