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Special Report: Lights off at Lehman soon
Sunday, September 14th, 2008New York, Sunday 14, 2008
Lehman is once again in the spotlight. But something tells me that this maybe this the last time it will be on anyone’s radar. In the recent weeks, there has been a number of rumors, speculations and mis-statements that Lehman will be absorbed in parts or in whole by some major financial institution. Since the credit crunch began in 2007 fall, Lehman and other Financial majors have been actively pursuing for additional capital to survive the credit crisis. Since the fallout of Bear Sterns, Fed and Treasury have taken an active role in preventing major financial meltdowns. On the one hand Government involvement has stabilized the market in the short term, on the other hand it creates a longer term issue.Lehman has approached several Financial institutions (both Domestic and Foreign) in the recent weeks for cash infusion. But none of them showed any interest after reviewing Lehman’s balance sheet. Lehman is one of the worst exposed among the Investment banks to the whole real estate market. Lehman pre-announced its third-quarter earnings last Thursday. Despite Lehman’s promise to purge its balance sheet of more than $30bn in weak real estate assets, most analysts remained skeptical of its rescue plan.
Since its founding in 1850, Lehman has successfully survived many of the historic events such as Civil War, WW1, Depression Era, WW2. It has slowly and agressively expanded into other banking segments such as Fixed Income Sales, Trading and Research, Investment Banking, Private Investment Management, Asset Management and Private Equity.
While it has always been a consistent risk taker in the past, it has only been in the recent past that it took excessive risk without considering the consequences. Most employees at Lehman will agree that Dick Fuld was responsible for this whole mess. He refused to see the gravity of the problem and continue to stay in denial mode.
This weekend, many of the major financial insitutions are meeting with Fed and Treasury Dept to figure out a way to provide lifeline to Lehman. Recently Bank of America Corp and Britain’s Barclay’s Plc have been mentioned as possible suitors. Goldman Sachs Group Inc., which also was being talked about as a potential buyer, is not interested, according to an industry official who ask not to be named.
On Thursday, the cost of credit insurance for Lehman debt rose as high as 805 basis points - meaning investors would be willing to pay $805,000 a year to insure $10m of debt for five years - before easing later on.
Meanwhile mortgage related problems continue to haunt other major Investment Banks and Insurance majors such as American Insurance Group (AIG), Merrill Lynch and Washington Mutual. It seems like both Fed and Treasury Dept have too many fires to put off and they wish this was all just a pretty bad dream.
May the force be strong with Federal Reserve and Treasury Dept!