Fed, Street Draft Deal To Buy Lehman's Bad Assets

Discussion in 'Wall St. News' started by Cdntrader, Sep 13, 2008.

  1. Fed, Street Draft Deal To Buy Lehman's Bad Assets
    Topics:Henry Paulson | Banking
    Sectors:Financial Services | Banks
    Companies:Morgan Stanley | JPMorgan Chase and Co | Lehman Brothers Holdings Inc
    By Charlie Gasparino On-Air Editor | 13 Sep 2008 | 06:58 PM ET

    A deal has been drafted to buy Lehman Brothers' bad assets and clear the way for an eventual sale of the troubled firm, CNBC has learned.


    Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman's bad real estate assets and create what's knows as a "bad bank."

    The proposal is being drafted Saturday night and will be discussed Sunday morning, according to sources close to CNBC. If Wall Street agrees on the terms, which would amount to around $3 billion per firm, it would clear the way for the sale of Lehman Brothers itself to one of several suitors, including Bank of America, Barclays Plc and HSBC.

    Executives remained less than pleased with the proposal as they left the New York Federal Reserve around 6 p.m. to convene again Sunday morning. Contingency planning for no deal getting done, potential bankruptcy and defaults continues as Lehman continues its search for a buyer.

    "Why should we give up capital so Barclays and Bank of America can buy a clean bank," said one Wall Street executive.

    Because the consequences of not doing a Lehman deal are so grave, though, people with direct knowledge of the deliberation say both sides will begin to compromise on Sunday. One Wall Street executive involved in the meetings put it this way: "I'm thinking logically; if they do nothing it's Armageddon. That means they do a deal. It will be announced at 6 p.m. (ET) Sunday."

    Bank of America, Barclays, HSBC and private equity firms are interested in purchasing Lehman Brothers, though far below the $70 share price that Lehman enjoyed earlier in the year.

    Executives from these outfits have met with company officials who began to shop the firm after it became clear that a recent plan to add more capital wouldn't be enough to strengthen the firm, which holds around $40 billion in bad real estate assets on its books.

    But with firms like Bank of America and Barclays refusing — at least so far — to budge on their position that they will only buy Lehman without the beaten down real estate assets, and the street balking on the government plan, which calls on the big firms to chip in a total of around $3 billion to purchase the Lehman assets, people with direct knowledge of the meeting say a deal may not get done.
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    Another problem: officials from the Federal Reserve and the Treasury were holding fast to their position that the government won't guarantee any of Lehman's bad assets, as they did with Bear Stearns, a move that allowed JP Morgan to purchased that troubled brokerage firm in March.

    But the Fed's stance might soon soften — as might the position of Wall Street — because the consequences are so dire.

    Without a deal, many market analysts predict Lehman will have to file for bankruptcy. Already, there is a near uprising at the firm. Top executives are saying they won't show up to work on Monday. It's unclear if other firms on the Street will continue to trade with Lehman and if Lehman can get loans from major financial players to fund its operations.

    Making matters worse, if Lehman does file for bankruptcy, top Wall Street executives involved in the meetings with government officials say they fear another financial firm may be next. All eyes have been on Merrill Lynch, which, despite a recent plan to strengthen its balance sheet, still has exposure to bad assets.

    Merrill, of course, is much more diversified firm than Lehman. It has the largest brokerage salesforce of any Wall Street firm, and a major investment in money management powerhouse, Blackrock.

    Merrill recently raised billions of dollars in new capital, in part by selling its interest in Bloomberg LP, and it sold much of its bad debt to outside buyers in a complex plan that forced the firm to take a huge writedown.

    But Merrill may not be out of the woods just yet. The firm still has some exposure to bad real estate, and short sellers may soon be targeting its stock, which has tanked in recent days, though top executives on Wall Street say Merrill could easily find a buyer such as a large bank because of the strength of its businesses.

    CNBC's Steve Liesman contributed to this report.
    © 2008 CNBC.com
  2. invent a new vessel, call it something cute, like "bad bank", dump the toxic shit in it and back to making donuts baby!!!
  3. taxpayers will get soaked again..

    and Lehman is a piker compared to the SIV that is Mount Everest
  4. would be nice if they got a deal done... who cares about the taxpayers I want to make the money for myself now
  5. AAA30


    I like how this was in the article. If he recommends MER and says $x was the absolute bottom watch out. But hey, he is only down 77% on his LEH call.
  6. I suggest you reference the "armeggedon' quote in the article.

    This is all air. There is nothing left. Remember when this started? The most any firm had was 34billion in capital. That was two raises ago. The stock prices reflect it. Everybody who bought the deals is totally underwater. Then they pulled stuff in that was off balance sheet. What else are they hiding? Now, they 're all huffy. 'Well!!! Why should we kick in and give Barclays a clean bank/"

    Because!! You stole, connived, contrived, obfuscated until there was nothing left. There 's a price to pay. And I don't want to pay it.

    The idea that these morons who got us into this mess are meeting to try to solve it is laughable.

    Want to make money Monday? Short 'em all. You know if there's a capital raise, the shortsellers will drill these things into the ground. Have at it. No one seems to care. No one.

    We've always got October to look forward to.:eek: