Lehman's Swaps Reach Bear's Levels

Posted by: Lauren Young on September 11, 2008

This was written by Ben Levisohn, a staff editor at BusinessWeek

Yesterday, Lehman Brothers tried to defuse massive talk of its imminent demise as an independent firm by disclosing plans for the future.

But rather than halting the freefall in Lehman’s (LEH) stock, the moves seems to have accelerated it – shares are down nearly roughly 45% in early trading on Thursday.

More worrisome, the spread on credit default swaps – the cost of protecting Lehman’s debt – has jumped from around 500 basis points yesterday to well over 700 today, according to Phoenix Partners Group, a swaps broker. In real terms, that means it now costs over $700,000 to insure $10 million of Lehman bonds.

To put that in perspective, Lehman credit default swaps are approaching the level of Bear Stearns before the Fed-orchestrated bailout.

For Lehman, the end game is on.

Reader Comments

BeyondTheMargin.net

September 11, 2008 1:10 PM

Another bailout? Unlikely. More likely a forced sale (purchase) like the BSC + JPM hookup. But, it seems, they are teetering on the edge.

http://www.beyondthemargin.net/2008/07/american-banks-house-of-cards.html

George McDuffee

September 13, 2008 1:38 PM

After Lehman, who is next on the hit list? WaMu, Goldman, Merrill, Citi, GMAC, GM, Ford, ???

America's financial structure has been a house of cards for years and needed only the slightest breeze to topple, although the skill to erect and maintain the baroque and arcane structures of such gargantuan size must be admired, even as their fragility and the wasted effort/capital involved must be deplored. We now have the sub-prime breeze of sub-prime defaults blowing with the gales of CDS counter party defaults and hurricanes of derivative unwinding yet to come.

badnews-aj

September 14, 2008 12:53 AM

here is my 2 bits, every single commercial property project now being built, unless has been preleased will go through bankruptsy and so will the banks that are providing construction finance

NG

September 15, 2008 2:47 PM

This is a chain reaction of one bank affecting the other banks and across the industries both domestically and globally. The worse has not come yet. As an investor and a worker, we put our hard earning money into the retirement plans. This will cause people panic. We will question how could it happen? More important, how can we fix it?

Tax Jobs

September 16, 2008 5:30 AM

The first thing i read in the papers today, 'Lehman Brothers declares bankruptcy' and 'Merrill Lynch bought by Bank of America'. News like this just reiterates the current financial condition of the US economy.

john

September 16, 2008 1:10 PM

looking for the answer...here it is!

http://www.newsweek.com/id/159092

Post a comment

 

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.

BW Mall - Sponsored Links

Buy a link now!