Lehman Brothers (LEH)

[iam802]

Taken from the following article.

http://www.nytimes.com/2008/09/12/busin ... ref=slogin

In an arrangement that is typical of Wall Street, Lehman employees have gotten much of their pay in stock and stock options in recent years. That figure could range from 10 percent to 60 percent in Lehman stock, according to a person close to the company

There is always a risk when a huge portion of the pay package is tie to the company's stock.

Lehman is not the first one. Enron is another. And before that, lots of dot-com.

I am wondering if there is anything that they can do to their stocks and stock options to hedge against possible risk.

[kennynah]

yes...they could have bought Puts... this is the only true protective hedge against losses in stock value...

eg...when LEH was at $65 last Nov.... if the employee caught wind of a disaster oncoming but could not yet sell off his LEH shares, maybe becos of the required holding period, then purchasing a Protective Dec07 60 Put, then Jan08 55Put, etc....would have been completely hedged against this freefall...

but buying Puts are expensive...so, he could have done something else...

Long Put and Short OTM Call... the 2nd position will receive credit and is largely for funding the Long position ...the 2nd position is really a Covered Call against his existing LEH shares...so, no additional margin is required.

This is strategy is also known as "No Cost Loss Free" Hedge...something that was discussed here...

viewtopic.php?f=16&t=702&st=0&sk=t&sd=a&start=10

Now, this is one reason why stock owners must consider using options as part of their investment strategy...

[iam802]

I'm trying to understand something here...

KDB gave up the opportunity to invest in Lehman because they it's difficult to value the assets. (This is what I assume).

If the above is true, how is selling parts of Lehman helps? The assets that is so hard to understand still stays.

Didn't the US govt. rescue Bear Sterns couple of months back...follow by F&F...

If Lehman does find investors, will the market really turn as a result? Or will it lead to a mini-rally and see the market falls further?

[kennynah]

802 : i think what is uncertain is the amount of toxic waste they are carrying in their warehouse. With no clarity, of cos, no investors will want to invest money in LEH.

Selling the parts of LEH, a division or a subsidiary, that has holds a different P/L and is not associated with any of the bad assets; is a simpler exercise.

even with fed opening their window for borrowings to purchase LEH, FED itself does not enter into any purchase. They will always simply act as a lender to the potential investor; just as they did with JPM's deal on BSC. But, i suspect, this is likely to be for american investors... i doubt their would extend this lending facility to KDB.

to be more accurate..the US Govt (ie Treasury Dept) did not rescue Bear Sterns, it was the Fed Reserve Bank that did the job. The Fed is not part of US Govt. It is a private institution; whose primary aim is purely to profit and a secondary duty to community service.

For F&F, it is different. There are in fact "stat boards", largely funded by US Treasury in the first place. And so, US Treasury will assume the responsibility of bailing out F&F, and not the Fed.

anyways, i could well be very wrong in all of the above ....

[ishak]

Paulson 'adamant' no govt funds for Lehman
Reuters, 12 Sep 2008

US Treasury Secretary Henry Paulson is 'adamant' that no government money be used in any deal that resolves the crisis at Wall Street investment bank Lehman Brothers, a source familiar with his thinking said on Friday.

The source said Lehman already has substantial support from the Federal Reserve as it races to negotiate with potential buyers.

'There are two things that make this different from Bear Stearns. The market's been aware of the situation for a long time and has had time to prepare. Second, the Primary Dealer Credit Facility was created by the Fed to allow time for an orderly process,' the source told Reuters.

'Given these things, (Paulson) is adamant that there will not be government money used in the resolution of the situation,' the source added.

The Federal Reserve in March provided US$29 billion in loan guarantees to facilitate a Fed and Treasury-brokered deal for JP Morgan Chase & Co to buy Bear Stearns & Co for a bargain price and save the investment bank from collapse.

That same week, the Fed set up the dealer lending facility, which allows Wall Street investment banks to borrow directly from the US central bank, in order to prevent the same type of massive liquidity crunch that felled Bear Stearns.

Lehman, the fourth-largest US investment bank, is fighting for its survival after massive asset writedowns and a US$3.9 billion loss from toxic real estate investments eroded market confidence in its ability to shore up its capital position.

Lehman shares traded nearly 12 per cent lower at US$3.73 on the New York Stock Exchange on Friday after falling around 40 per cent on Thursday.

Lehman is discussions with US officials about its options, which include a complete sale, according to other sources with knowledge of the talks. Bank of America was seen as the most likely suitor, although European banks Barclays Plc and HSBC Plc have also been linked with Lehman.

[millionairemind]

Barclays considers Lehman Brothers bid
By James Quinn, Wall Street Correspondent
Last Updated: 11:41pm BST 12/09/2008

Barclays is considering bidding for troubled banking giant Lehman Brothers in an attempt to bolster its presence in North America.

Lehman's shares plunged a further 14pc yesterday
Barclays Capital, its investment banking arm, is understood to be most interested in making an offer for Lehman's core investment bank in a scenario that would see the 158-year-old US bank split into three. Such a deal would propel Barclays into the top-tier of investment banks around the world, something that Bob Diamond, BarCap's president, is known to covet.

Full story
http://www.telegraph.co.uk/money/main.j ... man113.xml

[-dol-]

Our Singapore Wealth Fund is already sitting on huge losses on Barclays

I wonder if Barclays told them that the fund injections will be used for acquisitions into investment bankers???
Is commercial banks buying into investment banking still in vogue or logical?

Haven't we seen enough examples already?
eg. Citi & Salomon, Dresdner & Kleinwort Benson

PTC, ERPs, ...what next?

[millionairemind]

Human ERP - you strap on a cash card with the machine on your belt and there is a gantry just outside the door of your house.. ... saw this advert some where on TV..

[-dol-]

That will be sad... every step you take is a FINANCIAL decision

[winston]

China CIC Executive: Unaware Of Stake Buy Talks With Lehman
September 12, 2008: 10:13 PM EST

SINGAPORE -(Dow Jones)- A senior executive at China Investment Corp. said Saturday he's unaware of any talks about CIC buying a stake in Lehman Brothers Holdings Inc. (LEH).

"Sorry, I haven't heard this," Jesse Wang, CIC Executive Vice President and Chief Risk Officer, told Dow Jones Newswires when asked whether the CIC was looking into buying a stake into Lehman.

The Financial Times reported Friday on its Web site that Bank of America Corp. (BAC), private-equity firm J.C. Flowers & Co. and CIC, China's US$200 billion sovereign wealth fund were considering a joint bid for Lehman.

"The only question now is what price," the newspaper quoted a person who had been in discussions with the New York-based brokerage over asset sales and with regulators.