From Silicon Alley Insider, March 17, 2008: Bear Stearns (BSC) is gone, so the markets are wondering who's next. The leading contender? Lehman Brothers (LEH). Lehman's stock dropped 15% on Friday, and it's down another 33% in pre-market trading. Some specific concerns: Like Bear Stearns, Lehman is relatively small and undiversified. Like Bear Stearns, Lehman just reiterated that its "liquidity position is strong." Like Bear Stearns, at least one of Lehman's trading partners is cutting it off: The WSJ reports that Southeast Asia's biggest bank, DBS Holdings, has asked traders not to enter new transactions with Lehman Brothers. "DBS has sent an internal e-mail saying it would not deal with Lehman Brothers from now on." Like Bear Stearns, Lehman is levered about 30-to-1. Like Bear Stearns, Lehman chose not to raise additional capital last fall. Like Bear Stearns, no one has any idea what's really on Lehman's balance sheet (including, probably, Lehman) Unlike Bear Stearns, says an analyst at ING, Lehman is NOT too big to fail, which means that the Fed might not be in such a panic to bail it out. If Lehman is hellbent on following the Bear Stearns playbook, it will now trot Dick Fuld out onto CNBC to say that the bank is in great shape. And then, a day or two later, it will go bankrupt. Insane.
no liquidity risk anymore with fed opening the window to them, losses are up to debate, they hedged a good chunk of them but its possible that the hedge will fail. I dont think the issue will be losses, the only problem is a liquidity spiral and forced liquidations, the fed window might calm people down but who knows
Mark to market, thats whats is killing them. Watch the SEC the fed and washington remove market to market. Our financial system is a joke. Who set this this house of cards up anyway? All these banks have is a bunch of worthless paper.
Lehman golfing buddies to the rescue. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/18/cnlehman118.xml Wall Street rallies to aid Lehman By Helen Power in London and James Quinn in New York Last Updated: 12:07am GMT 18/03/2008 Wall street's leading investment banks have rallied around ailing rival Lehman Brothers after the Federal Reserve Bank of New York urged them to support the institution in order to try and preserve financial stability. It is understood the New York Fed contacted key executives at a number of leading banks, including Goldman Sachs, Citigroup and Morgan Stanley, to discuss Lehman's situation over the weekend. By yesterday morning, the banks' prime brokerage departments - which service hedge fund clients - were under strict instructions not to do or say anything in the market that could damage Lehman. The intervention is important because Wall Street fears a repeat of the events which led to the weekend's rescue of Bear Stearns. The bank was fatally damaged when hedge funds closed out their positions, demanding immediate repayment of the cash. One American banker said: "[We heard] from the top, 'Do not encourage calls to Lehman clients. We want to run that up the flagpole. We don't want another run on a bank.' " As a result, it is believed that bankers were told not to solicit Lehman's clients for business or to give the impression the bank is uncreditworthy. Lehman's business model is closest to that of Bear Stearns, and there has been considerable speculation surrounding the state of its balance sheet. A spokesman from Lehman Bros declined to comment. The other banks involved in the calls also declined to comment. A spokesman for the New York Fed said: "We never talk about private discussions between the Federal Reserve and commercial banks." According to a source close to one of the banks, the Wall Street club remains very supportive of Lehman and is wary of doing something that might harm the bank's financial position. Lehman chief executive Dick Fuld yesterday moved to calm concerns in the market, saying that the Federal Reserve's decision on Sunday to make secured loans to investment banks should ease fears. He said that from his perspective the creation of a liquidity facility for primary dealers "takes the liquidity issue for the entire industry off the table". In addition to the liquidity facility, the Fed also reduced the discount rate at which banks borrow money from 3.5pc to 3.25pc, ahead of today's Federal Open Markets Committee meeting at which the main base rate is expected to be cut by at least 0.75pc. In spite of his reassurances, Lehman's shares, which are now trading at their lowest level since 2003, fell as much as 46pc at one stage to recover to close down $8.82, or 22.5pc, at $30.44. Lehman is due to report first-quarter results this morning during which it is expected to attempt to allay investor concerns. Other banks to be hit included Citi, whose shares were off 9pc at one stage, and Merrill, which fell as much as 14pc. Respected banking analyst Meredith Whitney, of Oppenheimer & Co, predicted that shares in banks and other financial institutions would fall as much as 50pc in the wake of Bear's rock-bottom sale to JP Morgan Chase. Volatile trading was endemic across financial markets, with the New York Stock Exchange seeking to calm its floor traders by invoking a little-used rule that suspends the need to disseminate price indications and to obtain approval for prices prior to opening. US Treasury Secretary Henry "Hank" Paulson said he supported the Fed's actions over the weekend.
I would have confidently shorted LEH at around 70 and bought again today at 25. However, this is after the fact, so words are just words!