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.

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.”

“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

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