Posted by: Matthew Goldstein on September 9, 2008
Talk about gallows humor. With Wall Street buzzing Tuesday over what will happen to Lehman Brothers, sources say pens with the Lehman name printed on them were a hot commodity at the firm’s financial services conference taking place in New York City.
The pens, which were placed in large bowls outside the conference rooms at the New York Hilton in midtown Manhattan, disappeared quickly. Some people taking the pens weren’t shy about telling friends and people around them that they wanted a souvenir. The hunt for Lehman swag sums up the desperate situation surrounding Lehman, which has yet to find any outside investor willing to give it billions of dollars in badly needed capital.
Shares of Lehman fell from the start of the trading day and didn’t stop falling until the close of trading. The stock fell 44% to close at just under $8 a share—its lowest point since 1998. The big sell-off comes a day after after Lehman’s stock fell 13% in what has been a brutal year for the struggling investment bank. The plunge in Lehman’s stock price comes as a potential deal with a South Korean bank appears all but dead and the firm has yet to strike a deal with private equity investors for its one crown jewel—-its Neuberger Berman asset management business. Lehman has been shopping Neuberger and other asset managment businesses for weeks, but private equity firms have been unwilling to meet the firm’s terms.
The fierce selling is reminiscent of the trading action in shares of Bear Stearns during that fateful week in March when it was on the verge of collapse. Bear ultimately was sold to JPMorganChase for $10 a share in a hastily arranged shot-guy marriage by the Federal Reserve. In that deal, the Fed agreed to provide a lifeline to guarantee about $30 billion in Bear’s ailing assets. But in the wake of Treasury’s bailout of Fannie and Freddie, many on Wall Street are beginning to question whether the federal government will have the stomach to rescue Lehman too.
Time is clearly runing out for Lehman and CEO Richard Fuld. The firm is set to announce third quarter results on Sept. 18 and the results should be ugly. The firm may report a writedown of between $6 billion and $8 billion. There’s some speculation Lehman may announce its earnings earlier to calm the markets. But traders say that without raising the necessary capital, it will be difficult for Lehman to announce earnings because it would take a big hit to its already depressed book value.
Meanwhile, credit rating agency Standard & Poor’s says it may cut Lehman’s debt rating because of concern about the firm’s ability to raise new capital.
Lehman’s market-cap is currently under $7 billion and sinking fast. That’s well under the $9 billion that some market analysts have valued its Neuberger Berman business at as a stand alone entity. In other words, Wall Street is treating Lehman’s other businesses as if they have no real value. The situation begs for Fuld to do something—fast. But for now Lehman isn’t saying anything. Stay tuned.