Lehman Souvenirs

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.

Reader Comments

Jeffrey1234

September 9, 2008 3:28 PM

The Federal Government has to stop bailing out these private firms. They must fail, this is the capitalistic system that we live in. The airlines must fail, the automotive companies must fail, investment firms must fail. Any business that cannot make a consistent profit must fail. This is called capitalism. We are not a socialist sytem. This is very basic and sad to see that it is not being followed. Once these firms fail other firms will rise leaner and more attune to the market.

Michael

September 9, 2008 4:17 PM

I agree with Jeffrey1234 - in a capitalist society these businesses are weak and should be allowed to fail. To prop them up is not only morally and ethically wrong but bad business that will only weaken this countries economy further. Better to let the BAD BUSINESSES die off. If the concern is that there are too many businesses that have made bad investments, let them all fail. It will make us stronger and more competitive in the long run. Government giving money to overzealous speculators is like giving crack to an addict.

Donut

September 9, 2008 4:37 PM

You guys miss the point!
Capitalism is dead!! DEAD!! This country is on the path to anarchy and revolution. These bailouts only happen because the rich guys are trying to conserve whatever there is to conserve. If LEH fails, the market will collapse. Trillions of dollars are linked to whether LEH stays alive or fails.
Do you know what LH does and do you know how tied in the whole financial market is with them?

Harvey45

September 9, 2008 4:51 PM

These fellas are right on. Fannie and Freddie were Govt.charted and the stock holders got hit rightly. But Bear an LB just two more poorly run greedy firms that have to go.
This is " free market capitalism " isn't it

d_st

September 9, 2008 5:08 PM

People don't understand that the Real Estate crisis is identical to the 1980's real estate crash. The government is stepping in just as they did in the 1980's. If the government waits or doesn't intervene, the financial crisis will get so bad that it will take over 5 years to fix and cause a depression. By intervening now, they can fix it sooner in a year or two. The government has experience from the 1980's. Your tax dollars will go into repairing the financial crisis instead of useless wars. It's better to use tax dollars to repair the crisis now then a depression.

Canuk876

September 9, 2008 5:10 PM

what I don't get is when there is big profit then it is private and the fatcats on wall street get rich, but when they fail it is ultimately the public that bails them out.. If I was American I would be pretty pissed off right now at this mess.

hammer

September 9, 2008 5:34 PM

The book value is around $26bn. After tax the $5bn writeoff will reduce BV by $3bn and this will be offset by other businesses making money to the tune of $1bn. The net reduction in BV will be around $2bn. While susbstantial this is not what will cause LEH to cease as an entity. The lack in confidence from its counterparties is what will end LEH. It clients and banks will pull business and lines and LEH will suddenly disappear like DLJ and Bear Stearns. The Fed will not rescue them because the financial system can weather the elimination of another redundant IB. Contingent liabilites will be netted so there will limited counterparty exposure. Equity holders will be wipedout. Liability holders might not get back 100% of their investment, but it won't be zero. LEH deserved what they got with poor capital management and the failure to believe the problem was dire. They knew the values of their portfolio were overstated,but they didn't want to believe they were wrong. The Master of the Universe, Dick Fuld applied the "I hear nothing, I see nothing and I know nothing" brand of business management for LEH. His ego and conceit were the main reason this firm is being flushed down the toilet.

joe

September 9, 2008 7:15 PM

Bear Sterns, $29 billion. FNM and FRE, $100 billion each. How much for LEH?

james

September 9, 2008 7:41 PM

Welfare for the rich. They make their billions and run. Taxpayers have to scrape together their pennies to hold things together. Enough is enough. It is time to rethink our strategy for our country. Does the bottom 99% want to keep supporting the top 1% who have the majority of the wealth due to their schemes and scams? Food for thought people. Its time for a change.

james

September 9, 2008 7:42 PM

Welfare for the rich. They make their billions and run. Taxpayers have to scrape together their pennies to hold things together. Enough is enough. It is time to rethink our strategy for our country. Does the bottom 99% want to keep supporting the top 1% who have the majority of the wealth due to their schemes and scams? Food for thought people. Its time for a change.

Pat

September 9, 2008 8:18 PM

What have we turned ourselves into? Fed is bailing out all these failed companies. What next?

George McDuffee

September 9, 2008 8:33 PM

The problem is not the value of the "assets," although this is a real knot in the pantyhose. The problem is the unknown and unrecorded CDS[ credit default swaps] and other derivatives that will become active when LEH "bites the big one."

The question is how are we going to hold the people accountable that caused this mess, starting with the repeal of Glass- Steagal.

Civil/Criminal RICO suits would at least have the possibility of asset forfeiture where the existence of an on-going criminal enterprise can be shown.

Matt

September 9, 2008 9:46 PM

D_St is correct. The assertion that government interference in the markets is "socialism" and that these firms must be allowed to fail makes for interesting water cooler conversation but not for sensible macro economic policy in the world we live in. Spending 1X taxpayers dollars per capita to avoid a depression that would end up costing 3X or 5X dollars per capita isn't irrational or socialist.

Anton. L

September 9, 2008 11:06 PM

See China,what's the real capitalism?
Chinese Gov. are watching a most terrible collapse in stock market without doing anything.

autoprt

September 10, 2008 1:16 AM

the money that is bailing these businesses out isn't worth the paper its being printed on.
we're a great country but there is no way we can afford to spend billions daily on 2 wars, bail out billion dollar businesses every other day and give away billions every day in government incentives.

they same way i can't run my household budget this way the US Gov't can't do it either and at some point our debt rating will fall and when it does, reality will definitely hit home.

autoprt

September 10, 2008 1:17 AM

the money that is bailing these businesses out isn't worth the paper its being printed on.
we're a great country but there is no way we can afford to spend billions daily on 2 wars, bail out billion dollar businesses every other day and give away billions every day in government incentives.

they same way i can't run my household budget this way the US Gov't can't do it either and at some point our debt rating will fall and when it does, reality will definitely hit home.

a

September 10, 2008 2:09 AM

It's funny, how situation changes from great to ungly so quickly: http://www.economist.com/people/displaystory.cfm?story_id=11088839

FreeTibet

September 10, 2008 2:49 AM

I thought that let these companies, inc. fredie & mae, could have reduced america's foreign debt significantly. Obviously this will not good for future since this will deprivate future america's international buying power.

svetlana savrasova

September 10, 2008 3:19 AM

oups.. what will happen to mine 10 grand of EURO? i have bout Dragon II from Saxo bank 2 years ago. I am just a poor poet. Is it time to kiss bye-bye for the dosh?

Hugo van Randwyck

September 10, 2008 3:31 AM

It's okay for them to ask for cuts in corporate rates when they are making profits, but when they have management who are not up to the job, they want taxpayers money?! Let the market sort it out, let them go bust, if that is what would happen.
Their clients will go elsewhere, and these other companies - with good management - will be hiring again, and people can apply for those new jobs.

It's me again!

September 10, 2008 3:32 AM

I worked for a company who worked with Lehman durring the go-go days (alas...) When they got deep into repackaging mortgages as securities, but in order to get a 'AAA' rating had to gurantee they would buy back any and all non-performing loans, I knew they were doomed. I say good riddance - all the Lehman guys/gals thought they were gods. I never met Fuld, but from what I understand it came from the top. Good bye LEH, I wish I had shorted your stock over the last few days.

Praful H

September 10, 2008 3:39 AM

@D_St: How long and large do you intend to grow? The point in there are only so many people, resources and time that we have! We are not the universe that we will keep growing. Boom and Busts are part of the cycle. Booms give rise to excesses and mindless endeavors which eventually lead to busts. So, bailouts can only delay the inevitable, not prevent it.
@Canuk876: Their only 2 sides to things in this world. In this case, either you a big fat cat (thanks to the housing and financial bull run of last 5 yrs), you are the one bailing them out (thanks to all the federal taxes paid)

williambanzai7

September 10, 2008 3:45 AM

Why would anyone want to take business advice from the shlocksters that run these Wall Street Firms. All they are is a bunch of glorifies finders. They don't seem to understand business fundamentals. They put all their eggs in one big basket and call it risk management, they take all the earnings out in comp and call it human capital, they have no global business strategy other than to open all over the place, the have the inside track on global capital flows but are too stupid to read the data. Bush says they all got drunk. I say they are all greedy numbskulls.

Gaurav Sood

September 10, 2008 4:36 AM

The fact still remains that it's the greed of LEH that has bought them into this position. Why should the govt. bail them out, when they were making millions in bonuses then no one had an issue, so why now ehn things are crashing. I think we in US have always maintained survival of the fittest and that why we rule the world. Bailouts would not set a very good example. Another reason is that when we let the market forces decide the fate of the companies others will also be more cautious. LEH has a good anount of time to clean upp this mess even after the crisis but they choose to wait and watch probably taking a que out of the Bear Strean book and thnking that they would anyways be bailed out of the mess.

sprevis

September 10, 2008 4:41 AM

Bravo to Jeffery1234. In one concise paragraph he has "hit the nail on the head." Couldn't have said it better!

john

September 10, 2008 5:40 AM

This is not a fundamental financial problem but a crisis of confidence caused by the media and the long list of people that thrive and profit on calamity. Because of this Lehman will struggle in the near term but as the fundamentals again make the market you will see this company rebound to a level that will kill the short sellers that have tried to undermine the firm to satify their own greed. The rumor spreaders will eventually suffer without fanfare but suffer none the less. Firms like Lehman have added fundamental value to the US and global economies for decades and will continue to do so once the markets grow tired of the BS and get back to business.

svetlana savrasova

September 21, 2008 2:43 PM

Well, i have recently divorced and thought i will do good with my part of the estate.. Looks likes the best i can do in present economical climate is TO MARRY SOMEONE RICH YET AGAIN! oh, no...

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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