Dirty Vile Gossip Closes Out Lehman’s Second Quarter from Hell
The puke-athon in the brokers is unlikely to end until the recapitalization efforts run their course. But with a turf war in Washington brewing, perhaps the “temporary” borrowing window at the Fed will stay open past the mid-September deadline. Extending the window might buy some time for the brokers to figure out how to ditch assets and/or raise capital.
Of course, they can always take the road less traveled:
Shares of the battered investment bank took another beating on Monday on widespread speculation that a rival firm was going to make a bid for Lehman Brothers (LEH-NYSE) at a substantial discount to its current price. Much of the speculation, traders say, focused around Barclays (BCS-NYSE), the British-based bank. Lehman shares fell 11% to finish under $20.
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Herbie would agree, its FUBAR at Lehman
Herbert Lehman (1878-1963)
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The talk on Wall Street is that Barclays may be preparing to make a bid for Lehman at a severe discount from Monday’s closing price. Officials with Barclays had no comment, and a Lehman spokesman says, “no comment per our policy of not commenting on rumor or speculation.” In any transaction, Lehman’s most prized asset may be its Neuberger Berman asset management group, which it acquired five years ago for $2.6 billion. Business Week
On June 19th “takeunder’ talk first appeared, which, given comments from regulators, might not seem so farfetched:
....regulators seem to be backing away from Lehman at a measured pace. Washington might let someone go down, but want to minimize the fallout to counterparties. Will Dick Fuld drown despite his $45 billion liquidity pool? Many people are beginning to claim he should go, but I have never given the idea much credence, and Dick seems to be dug in deeper than Jimmy Cayne ever was.
Wall Street’s tag sale continues, and the disposition of Neuberger & Berman, which I had only expected under the most dire circumstances, might finally be on the table:
June 15th
And Lehman has options, too. Few people have discussed their stake in asset management operation Neuberger & Berman. Lehman paid $2.6 billion for the shop in 2003, and with approximately $120 billion in assets under management, the firm today should be worth at least twice what Lehman paid for it.
Dick Fuld has not gone anywhere, but the ship is taking on water. Was the mid-day implosion just a bullshit rumor exacerbated by end of quarter trading? Showing the stock on your sheets now is an embarrassment, unless of course you are short.
But it is always darkest before the dawn, and Morgan Stanley initiated the stock with a “buy” and $31 target after the close of trading:
“We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing,” wrote analysts Patrick Pinschmidt and Avi Ghosh. “The firm’s ability to weather near-term market headwinds and return to respectable return on equity generation should help the shares trade closer to book value.”
The Morgan analysts expect ROE to rise from 3 percent in the second half of this year to 12 percent in 2009 and 14 percent in 2010—even as debt trading declines 28 percent versus its peak.
“A return to profitability amid a healing credit market should drive valuation close to book value,” they added. Reuters
Although their longer-term prospects are debatable, it would appear Lehman has the liquidity to get through a Bear Stearns type run on the bank. Regulators do not appear to be successfully quashing the rumor mill, which is alive and well despite the loss of tens of thousands of Wall Street’s foot soldiers.
Lehman Brothers to be a “take under’’ candidate?
Business Week
Lehman up after Morgan Stanley’s overweight rating
Reuters
Previously
June 19th
Fuld Festers While Takeunder Talk Transpires
1440 Wall Street
High Noon for Fuld, Lehman Brothers
1440 Wall Street
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position
Vanity Fair Writes Latest Chapter on Bear Stearns’ Demise
Although a series of miscalculations left Bear badly wounded, coup de grace theories have been floating around since mid-March. The usual suspects are in the crosshairs, including Wall Street's version of The Breakfast Club:
According to one vague tale, initially picked up at Lehman Brothers, a group of hedge-fund managers actually celebrated Bear’s collapse at a breakfast that following Sunday morning and planned a similar assault on Lehman the next week. True or not, Bear executives repeated the story to the S.E.C., along with the names of the three firms it suspects were behind its demise. Two are hedge funds, Chicago-based Citadel, run by a trader named Ken Griffin, and SAC Capital Partners of Stamford, Connecticut, run by Steven Cohen....The third suspect, at least in Bear executives’ minds, is one of its main competitors, Goldman Sachs. Vanity Fair
Goldman and SAC are predictably denying they played a role; and even if they had a hand in it, it is more likely to have been the work of random employees than a widespread conspiracy. But enough people were moving in for the kill, and not just shorts. Picking up market share and settling an old score might have been one guys motivation:
Time for Thain to End the Pain
Although no one has ever accused Merrill Lynch (MER-NYSE) CEO John Thain of being a deer in the headlights, he certainly seems to be taking his sweet time deciding which avenue to take in his anticipated capital raise.
Lehman Brothers is the latest firm to take a swipe at Thain and Merrill:
Merrill Lynch & Co will likely incur $5.4 billion of write-downs in the second quarter, mainly from its exposure to bond insurers, said an analyst at Lehman Brothers.
Lehman analyst Roger Freeman raised his write-down view by $3 billion for Merrill, making his estimate the highest among Wall Street analysts. Analysts have to date expected write-downs to range from $3.5 billion to $4.2 billion.
Merrill is likely to have to raise capital if it does write down these positions, because the charges will leave Merrill Lynch with low capital levels relative to the industry, said Brad Hintz, analyst at Sanford C. Bernstein. Reuters
Picking a bottom in the brokers might be a decision that is best tabled. I am still working on the assumption that the temporary lending facilities to the brokers will be pulled by mid-to-late September, and the brokers have only 90 days to find the money, whether through asset sales or additional capital raises. Until the process is complete, the stocks will continue to be radioactive.
Goldman Cuts Citigroup Target to $16, adds Stock to Conviction Sell List
A move by Goldman Sachs to downgrade the shares of Citigroup, Inc (C-NYSE) and slash the stock’s price target should reverberate through the market on Thursday.
And given the can of whoopass Goldman is opening, fresh 52-week lows would seem a lock:
Citigroup Inc., the New York-based bank that’s posted the biggest losses from the collapse of the U.S. mortgage market, may take an additional $8.9 billion in net writedowns in the second quarter, Goldman Sachs Group Inc. said in a research report.
The company is estimated to write down $7.1 billion of collateralized debt obligations and associated hedges, and $1.2 billion for other asset classes, Goldman said in a June 25 report. It may need to post a $600 million loss to reflect the mark-to- market value of its own structured note liabilities, Goldman said.
``We see multiple headwinds for Citigroup including additional writedowns, higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts or asset sales,’’ Goldman said in the report.
Goldman cut its six month price target for Citigroup to $16 and puts the New York-based investment bank on its ``conviction sell list.’’ Bloomberg
While Vikram Pandit is not toast yet, the dividend might be, and further capital raises are assured, according to Goldman.
Your move, Dick Bove.
Citigroup May Take Extra $8.9 Billion Writedowns, Goldman Says
Bloomberg
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position
