Tag: Lehman Brothers

Extracting blood from a Lehman Brothers turnip

From the mailbag …

Made me laugh

Made me laugh

It’s beating a dead horse to bother filling out the myriad of forms within, particularly if your purchase of said securities was to cover short positions. Like with Fannie Mae. And maybe even Bear Stearns, if at the time you were playing Who’s The Counterparty (for entertainment purposes only, of course).

MG signing off (as by now the accountants and analysts ‘responsible’ have left the business anyway)

Short-selling rules back in play (UPDATED)

Bloomberg sayeth:

The U.S. Securities and Exchange Commission stiffened rules against manipulative short-selling after a market rout pushed American International Group Inc. to the brink of collapse and triggered Lehman Brothers Holdings Inc.’s bankruptcy.

The SEC adopted two regulations today forcing traders and brokers to close out short sales on all stocks, amid concern investors are driving down prices by flooding markets with sell orders. A third rule makes it a securities fraud when sellers deceive brokers about delivering borrowed shares to buyers.

“These several actions today make it crystal clear that the SEC has zero tolerance for abusive” short-selling, SEC Chairman Christopher Cox said in a statement on the rules that take effect tomorrow.

Short-selling now caused Lehman’s and AIG’s collapses? Shame on Bloomberg. Mr. Cox might also have noted that the shares of other firms were often used as bonuses, and they just couldn’t have bankers’ comp under water (as said bankers noted at last week’s meeting).

UPDATE: CEOs of investment banks talking their book (emphasis mine)…

Seeking to avoid the kind fate that led Lehman and Bear Stearns to collapse, John J. Mack, Morgan Stanley’s chief executive, made an unsuccessful effort on Tuesday evening to persuade Citigroup’s chief executive, Vikram S. Pandit, to enter into a combination, according to people briefed on the talks.

“We need a merger partner or we’re not going to make it,” Mr. Mack told Mr. Pandit, according to two people briefed on the talks. Mr. Pandit, a former senior investment banker at Morgan Stanley, said Citigroup was not interested.

When you’re making statements like that, short sellers or no short sellers, your stock is headed for the tank.

UPDATE 2: Hmm…

Editors’ Note [NYT]

An earlier version of this article cited two sources who were said to have been briefed on a conversation in which John J. Mack, chief executive of Morgan Stanley, had told Vikrim S. Pandit, Citigroup’s chief executive, that “we need a merger partner or we’re not going to make it.” On Thursday, Morgan Stanley vigorously denied that Mr. Mack had made the comment, as did Citigroup, which had declined to comment on Wednesday.

The Times’s two sources have since clarified their comments, saying that because they were not present during the discussions, they could not confirm that Mr. Mack had in fact made the statement. The Times should have asked Morgan Stanley for comment and should not have used the quotation without doing more to verify the sources’ version of events.

Maybe the SEC should be regulating the media as well as the market.

Barclays purchase decision set for Friday

Barclays has a sweet deal in hand – all it takes is a bankruptcy judge to give final approval. Hearing set for Friday.

Editor’s note: Start reading the linked article at paragraph three – the bit at the beginning about Chelsea Clinton being at today’s hearing not only doesn’t add anything to the real story, but it makes the whole process sound like some kind of circus side show.

Barclays to buy Lehman Brothers assets (UPDATED)

No mention of purchase price on the $639 billion of assets (or portion thereof), probably because they need court approval first.

UPDATE: Forbes says the price is around $1.75 billion, and includes the investment banking and capital markets operations, as well as the Lehman headquarters property. In addition (I assume) Barclays will take on trading assets valued at $72 billion, and related liabilities of $68 million.

US Financial Sector Bailing Without Big Pail (UPDATED)

No government assistance this weekend

As Lehman Brothers, one of oldest names on Wall Street, appeared to unravel on Sunday, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By late afternoon, Merrill Lynch, under mounting pressure, entered into talks to sell itself to Bank of America.

While the New York Times waxed on about spoiled cocktail parties and canceled weekends in the Hamptons, Bloomberg noted that Lehman’s lawyers were prepping Chapter 7 paperwork and the Wall Street Journal said the Merrill Lynch board was nearing a vote on a $29/share sale to Bank of America.

After reviewing chatter around the web, I’ll say the consensus expectation is that Washington Mutual is a foregone conclusion, and that Wachovia and AIG are not far behind.

I guess the powers that be in the United Socialist State Republic of America figured they’ve already bitten off a century’s worth of meals with Fannie and Freddie.

UPDATE: The Fed has been clocking some overtime – according to their now regular Sunday press release, they are “broadening” the Primary Dealer Credit Facility and the Term Securities Lending Facility (i.e. the emergency conduits for the printing of money in return for collateral of declining value). In particular…

The collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities.

Unless I am completely off base, this means that the PDCF will now accept equity securities in return for short-term loans. The tri-party repo system is run primarily by Bank of New York and JP Morgan Chase – this is the kind of move that would reflect either 1) declining confidence in their ability to continue clearing the transactions or 2) something done with their prodding in order to reduce their own counterparty risk.

Big stuff.

UPDATE 2: Lehman files Chapter 11.

Florida Just First to Face National Run on the Bank

This story has already been told.

While “Muniland” may certainly be in for more hits, that doesn’t necessarily affect the average investor – one might try moving up the sophistication chain a notch. The next stop seems to be regional bank money market funds.

UPDATE: Pay attention to the natural progression – specific to the Florida case, that means pointing fingers at the previous political office holders.

UPDATE 2: Blackrock to the rescue. Excellent call, and it sounds like they are dealing quite fairly and equitably with the remaining fund participants.

First “run on a bank” sighted

At least in the US. Branches of Northern Rock were where the first official runs took place, but the Northern Rock is UK based. And this case isn’t exactly a bank, but it might as well be (particularly if you are a local government in Florida).

great-seal-of-the-state-of-floridaThe State of Florida runs an investment pool for its local governing bodies, and that pool just so happened to toss a lot of cash into a structured investment vehicles. “Structured investment vehicle” is a fancy way of describing a pile of commercial paper with a few odds and ends thrown in to enhance returns. The odds and ends are generally all the paper nobody still breathing would buy for more than a nickel on the dollar if marketed to them directly. These structured investment vehicles have taken a nasty hit to their credit ratings, and true value is in question.

As a result, all those local governments are taking no chances – they are withdrawing their money in droves. By droves I mean the following: two weeks ago the fund had $27 billion in it – as of this morning, the tally stood at around $19 billion.

I’d call average capital withdrawals of 15% per week a…uh…run on the fricken bank. Of course, the state has to actually sell investments to generate the cash for all those withdrawals, and seeing as SIVs are getting bailed out by their proprietors (again, as nobody wants them), I suspect Florida is selling some of their assets at tidy losses.

There is a solution, so to speak, to all this…file the puppy:

Should the withdrawals continue, Florida’s pool may have to consider filing for bankruptcy protection, says John Coffee, a securities law professor at Columbia Law School in New York. “A bankruptcy could handle these kinds of problems if they feel they’ll become insolvent,” he said.

Mr. Coffee is spot on – filing will stave off the run, but it also means the funds would be frozen by the court until the matter is resolved. When it comes to financial assets resolution generally means orderly liquidation, or everyone sitting around with their thumbs up their behinds, simultaneously hoping the remaining assets rise in value and paying bankruptcy attorneys virtually every dime of any increase. In addition, any local governments that pulled their money out in the last few weeks might be forced to return it or suffer many preference payment lashings at the hands of the U.S. Bankruptcy Court. I can see them all buying twenty-year supplies of textbooks and container loads of new chalkboards right about now.

Meanwhile, I hadn’t reached the third paragraph of the news when I thought “who’s going to file the lawsuit, the state or the municipalities that don’t get out in time?” Who knows for sure, but the experts are presumptive:

Coffee predicts the pool will likely file lawsuits to recover losses. “I’d expect the pool is going to sue the people who sold them the commercial paper, saying the risks were hidden,” he said.

While the state bears some burden of doing their due diligence, there’s a pretty good chance the risks were hidden too. The finance industry has a nasty habit of overlooking needed disclosure when they’re trying to get the next, best, hot product out the door. I’m going to go out on a limb and suggest this case follows the rule rather than the exception, and even if it doesn’t there’s a pretty high likelihood lawsuits will be flying anyway…this is America we’re talking about after all.

Lehman Brothers Holdings Inc. sold Florida most of its now default-rated asset-backed commercial paper. Lehman spokesman Randall Whitestone declined to comment.

Declining to comment, particularly when said declination comes from a spokesperson (whose sole job it is to comment), can usually be interpreted as “We’re lawyering up, and will call you when counsel has blown through a few retainer checks.”

There are two concepts worth keeping in mind here: 1) Florida isn’t the only government that is having this problem – it’s just the first; and 2) I don’t own any Lehman Brothers Holdings, Inc. common stock.

UPDATE: As of Thursday morning, the State fund has halted withdrawals, but not until after an additional $3 billion was pulled. Executive Director Coleman Stipanovich noted:

“There is no liquidity out there, there are no bids” for those securities.

Translation: the political damage from stemming the withdrawals is less than the losses that would otherwise be incurred from liquidation.

UPDATE 2: Participants in the Florida pool are now…what I’ll call “nicely demanding“…a hundred cents on the dollar for their deposits. You might also call this “wishful thinking.”

UPDATE 3: Having trouble paying teachers.