Lehman Brothers (LEH)

Re: Lehman LEH

Postby LenaHuat » Mon Sep 08, 2008 6:00 pm

And the Royal Bank of Canada is also getting into the queue.
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Re: Lehman LEH

Postby millionairemind » Mon Sep 08, 2008 7:17 pm

Wall Street Trading Gets Zero Value From Lehman, Merrill Owners
By Yalman Onaran

Lehman's market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors' valuation of the rest of the third-biggest U.S. securities firm is zero.

After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.

``We're standing at one edge of the Grand Canyon, looking at the other side,'' said Brad Hintz, an analyst at New York-based Sanford C. Bernstein & Co. and a former Lehman finance chief. ``I can see a rejuvenated fixed-income market and Lehman as one of the major players in that market at the other side, but we don't know how deep the canyon is. And we have to get through the canyon to get to the other side.''

Lehman's asset-management unit is worth about $8 billion, based on the amount of cash it manages for clients, compared with publicly traded rivals such as New York-based BlackRock Inc. or Federated Investors Inc. of Pittsburgh. That leaves less than $3.5 billion for the rest of the fourth-largest U.S. securities firm.

Writedown Concerns

Merrill's retail-brokerage division is worth about $29 billion, based on earnings multiples of comparable publicly traded brokers, while its 49 percent stake in BlackRock is worth $12 billion. That equals Merrill's market value. Morgan Stanley's retail brokerage could garner $19 billion and its asset-management business $17 billion, according to the same calculations, leaving about $10 billion for the rest of the second-biggest securities firm, including its trading business. Officials at the three New York-based firms declined to comment.

The biggest reason for the depressed valuations is concern about writedowns on the companies' mortgage holdings. Merrill, Lehman and Morgan Stanley have written down $74 billion of their holdings tied to home loans, commercial real estate and leveraged finance for companies during the past four quarters, data compiled by Bloomberg show.

`Uncertainty' Discount


Goldman Sachs Group Inc. analyst William Tanona estimates another $12 billion of losses for the three firms in the third quarter. Those probably will wipe out any trading revenue for the period.

``Uncertainty requires a discount,'' said Roger Lister, New York-based chief credit officer for financial institutions at DBRS Inc., a Canadian credit-rating company. ``Equity investors are worried about writedowns resulting in more dilution. That swamps longer-term valuations. Similarly, the credit-default swaps on these banks' debt are treated like junk.''

The losses have mostly been caused by the mortgage-related positions built while packaging loans into securities to be sold off. Merrill, the largest underwriter of collateralized debt obligations, and Lehman, No. 1 in mortgage-backed securities, ended up owning too many of the bonds themselves when investor appetite waned.

Goldman Exception

Even when the credit market returns to normal, securitization will be a much smaller business for the brokers because they will have to scrutinize inventories more to prevent similar losses, said Samuel Hayes, professor emeritus of investment banking at Harvard Business School.

``They've realized they need customers to trade with and to successfully underwrite securities,'' Hayes said.

In the second quarter, trading revenue -- adjusted to exclude writedowns -- was down 41 percent from the previous quarter and 25 percent from a year earlier for Merrill, Lehman and Morgan Stanley combined. Goldman Sachs, which has managed so far to avoid the evaporation of earnings that its peers have encountered, was the exception: Its adjusted trading revenue was little changed.

Goldman's writedowns, $3.8 billion so far, have been dwarfed by those of its three smaller rivals. Strip away Goldman's asset- management business, worth about $25 billion, and the rest of the firm, including trading, is valued at $45 billion.

Fees from trading stocks and bonds for clients declined over the past three decades as improvements in technology and access to information reduced the role of brokers.

Ten-Year Recovery

To make up for the shortfall, Wall Street firms turned to proprietary trading, or taking positions with their own capital. Though more profitable, proprietary trading is also riskier, and some of those positions blew up during the credit crisis. Most of Morgan Stanley's writedowns have come from mortgage-related assets acquired, not originated, by the firm.

``Before the 1980s, trading was the poor brother of investment banking, but then it overtook everything else,'' said Charles Geisst, author of ``100 Years on Wall Street'' and a finance professor at Manhattan College in New York. ``Wall Street has to look for other profit centers for a while, but it'll never give up trading, including prop-trading.''

Between 2002 and 2006, investment banking made up less than 20 percent of average total revenue for the four largest securities firms. Trading accounted for as much as 70 percent during some quarters before declining to about 50 percent last quarter. Geisst said it may take as long as 10 years before trading revenue numbers catch up to peak levels in 2006 and 2007.

Lack of Transparency

Lehman would be crippled more than its rivals if it sold its asset-management division, he said. While Morgan Stanley and Merrill have retail-brokerage divisions to bring in revenue, Lehman would be hard-pressed to replace the income it earns from asset management.

Investors are having a hard time valuing the rest of the business at Lehman because there's no transparency about the mortgage securities on their books, said Janet Tavakoli, author of ``Credit Derivatives & Synthetic Structures.'' Lehman, Merrill and Morgan Stanley borrowed heavily to fund their mortgage investments, which is coming back to hurt them, she said. The three investment banks' total assets were about 30 times their capital levels last year.

``When you're highly leveraged, you need to be very careful about the quality of your fixed-income assets,'' said Tavakoli, president of Chicago-based Tavakoli Structured Finance Inc. ``Even if you held Treasuries, you could lose big money when interest rates moved against you. When you take credit risk as well, which was the case with mortgage bonds, then you're really in trouble.''

"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

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Re: Lehman LEH

Postby LenaHuat » Mon Sep 08, 2008 10:26 pm

Warren Buffett said that Bear Sterns was a 8.5 on the Richter and Fannie Mae and Freddie Mac was a 9.9. I wonder what LB is?
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Re: Lehman LEH

Postby millionairemind » Tue Sep 09, 2008 9:42 am

Fears over S Korean lifeline for Lehman Brothers
By James Quinn, Wall Street Correspondent
Last Updated: 11:35pm BST 08/09/2008

Lehman Brothers' hopes of a financial lifeline from Korea Development Bank (KDB) have been called into question after South Korea's financial regulator urged the bank to carefully consider any investment.

KDB is understood to be leading a consortium of South Korean banks hoping to invest up to $5.3bn (£3bn) in the beleaguered US investment bank. The investment is part of a plan by KDB to transform itself into a global investment bank ahead of government plans to privatise the bank by 2012.

However, Jun Kwang-woo, chairman of South Korea's Financial Services Commission, appeared to warn KDB away from such an investment, saying: "Considering financial market conditions domestically and abroad, KDB should approach buying into Lehman at this point of time very carefully."

The potential KDB-Lehman investment is further complicated by the fact that KDB's chief executive, Min Euoo-sung, headed Lehman's Korean operations until June of this year. A week ago, the KDB chief said negotiations with Lehman were continuing, but it was proving difficult to agree a price.

More on banking
"I think it is desirable to make a joint bid for Lehman Brothers. So KDB is in talks with other commercial banks on forming a consortium," he said at a press conference in Seoul. "It is difficult to predict the outcome of negotiations with Lehman Brothers due to differences over price."

The KDB-led investment is one of a number of options understood to be being assessed by Lehman's board in a bid to bolster its balance sheet.

The bank is also talking seriously with private equity houses Blackstone and KKR about the pair buying some of its real estate and alternative asset investment operations, while it is also considering selling some of its mortgage book at a discount in a similar deal to that done by Merrill Lynch with private equity house Lone Star in July.

Lehman Brothers has refused to comment on the negotiations.

Meanwhile, Mr Kwang-woo of the South Korean FSC also said that HSBC's $6.3bn bid to take control of Korea Exchange Bank (KEB) could be given the go-ahead in the near future if the regulator finds no faults with documents submitted by the companies involved.

"We have been reviewing the application since August 11 and my knowledge is that there have been no special problems with the process so far," he added of the deal, which was announced in September 2007 when HSBC agreed to buy the 51pc of KEB currently owned by Lone Star.

The long-running deal is seen as a test of whether South Korea is genuine in its pledges to open its financial sector wider to international investors. The collapse of the sale would deal a blow to South Korean president Lee Myung-bak.

Meanwhile, Mr Kwang-woo dismissed talk that local markets could face a crisis due to possible mass capital flight out of Asia's fourth-largest economy.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

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Re: Lehman LEH

Postby kennynah » Tue Sep 09, 2008 10:38 am

i am just speculating...KDB's involvement in this potential deal, could well be politically influenced. s.k. is practically at the mercy of US for military protection against mainland china. from historical perspective, they were also liberated from the japanese by the americans.
if (big if) this is true, then who cares about whether this investment is good or bad for the s.koreans...the americans will insist on pay back time.
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Re: Lehman LEH

Postby blid2def » Tue Sep 09, 2008 10:48 am

kennynah wrote:i am just speculating...KDB's involvement in this potential deal, could well be politically influenced. s.k. is practically at the mercy of US for military protection against mainland china. from historical perspective, they were also liberated from the japanese by the americans.
if (big if) this is true, then who cares about whether this investment is good or bad for the s.koreans...the americans will insist on pay back time.


I guess there's always this political element to consider - just like the Temasek / GIC investments. Sometimes things look stupid/good on the surface, but we dunno what are the other incentives/disincentives below that.
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Lehman LEH

Postby ishak » Wed Sep 10, 2008 12:16 am

Lehman shares plunge 30 percent on report that talks with Korea Development Bank ended
AP, 09 Sep 2008

Lehman Brothers Holdings Inc. shares plunged to a new low Tuesday on a report that talks with state-owned Korea Development Bank ended without any deal for a badly needed capital injection.

The nation's fourth-largest investment bank had hoped to secure a deal with the Korean fund before announcing third-quarter earnings on Sept. 18. Lehman is facing billions of dollars in losses from wrong-way bets on mortgage securities, and had hoped another round of capital raising would encourage investors.

Shares of Lehman dropped shortly after a Dow Jones Newswires report quoted the head of South Korea's financial regulator as saying the talks had concluded. However, it appears that report itself is being disputed.

Yoo Jae-hoon, a spokesman for South Korea's Financial Supervisory Commission, flatly denied any statement was made.

"We are not in a position at the FSC to broadcast how the deal is going," Yoo told The Associated Press when asked about the report. "That is very improper."

A spokesman for Lehman Brothers could not immediately be reached for comment, but in the past have declined to comment on similar speculation.

Lehman's stock plunged as much as 45 percent in late-morning trading, and is down more than 90 percent this year. The stock fell as low as $8 before recovering a bit to $9.89, down $4.26 or 30 percent, at midday.
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Lehman LEH

Postby ishak » Wed Sep 10, 2008 12:16 am

Lehman tumbles after Neuberger news, loss forecast
Reuters, 09 Sep 2008

Lehman Brothers Holdings shares tumbled as much as 19.6 per cent after a report it is meeting with potential buyers of its Neuberger Berman asset management unit, and a widely-followed analyst said the investment bank's quarterly loss might grow.

According to CNBC television, Lehman executives have been holding the meetings about Neuberger and have brought the unit's management into the sales process.

Analysts have said the unit, one of its healthier businesses, could be worth US$7 billion to US$8 billion. A Lehman spokesman, Mark Lane, declined to comment.

'If they sell it, it does smack a little bit of desperation,' said Chris Armbruster, an analyst at Al Frank Asset Management in Laguna Beach, California, which owns Lehman shares. 'A sale indicates significant problems with Lehman's existing liquidity position. To that extent, we're not happy about a sale, but it's better than the alternative.'

A sale of Neuberger could help Chief Executive Richard Fuld shore up capital as he negotiates possible asset sales. Lehman announced plans on Monday to report third-quarter results on Sept 18 and also update investors on 'strategic initiatives.'

Analysts on average expect Lehman to lose US$2.83 per share according to Reuters Estimates, hurt by a multibillion dollar write-down of its mortgage holdings. Lehman lost US$2.8 billion, or US$5.14 per share, in its second quarter.

Merrill Lynch & Co analyst Guy Moszkowski increased his projected loss for Lehman on Monday to US$6.50 per share from US$3.94, saying the write-down could total US$7.1 billion.

'These marks could be delayed if the actual sales/restructuring are not completed, but they seem inevitable if the company is trying to move assets,' he said. 'A wider loss can't be ruled out.'

Lehman shares closed down US$2.05, or 12.6 per cent, at US$14.15 on the New York Stock Exchange, after earlier falling as low as US$13.03.

The stock recovered some losses after Lehman's announcement dampened speculation the company might report poor results sooner. Lehman's 52-week high is US$67.73, set last Nov. 14.

Lehman has been in talks with investors such as state-owned Korea Development Bank on possible capital infusions and some analysts expect it to spin off or otherwise dispose of much of its commercial real estate portfolio.

On Sunday, Lehman announced the latest shuffling of its executive ranks. It announced the departure of global head of fixed income Andrew Morton and named Eric Felder and Hyung Soon Lee as his replacements.

Lehman also said Jeremy Isaacs, head of its Europe, Middle East and Asia-Pacific operations, will leave. According to published reports, Isaacs was passed over in June for the president's job, which went to Herbert 'Bart' McDade.

Brad Hintz, a Sanford C. Bernstein & Co analyst and former Lehman chief financial officer, said a sale of Neuberger could generate a US$4 billion to US$5 billion pretax gain.

But he added that Lehman will likely need to raise US$7.5 billion of new capital, diluting existing shareholders.

Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey, said: 'If they raise the cash, that tells you two things: They are desperate for the cash. Secondly, if they sell at a bargain basement price, that's not good.'
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Re: Lehman LEH

Postby kennynah » Wed Sep 10, 2008 2:50 am

better skip all investment banks until some clarity is achieved... sibei chew itchy for financials...stick with the fullfledged brick mortar banks
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Re: Lehman LEH

Postby millionairemind » Wed Sep 10, 2008 7:28 am

kennynah wrote:better skip all investment banks until some clarity is achieved... sibei chew itchy for financials...stick with the fullfledged brick mortar banks


K - tell that to our gahmen... :(

If Lehman fails, ML is next on the line :o :shock:
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

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