Lehman Brothers Liquidation Likely
There is a special CNBC program on Lehman tonight, 8-10 PM New York Time.
>
Holy Shit! Latest Update:
Merrill Board voting on $29 per share all stock deal, according to WSJ;
NYTimes says says Lehman Bankruptcy filing imminent;
U.S. Stock Futures Tumble on Lehman Bankruptcy (Bloomberg)
Greenspan: Other big U.S. finance firms may fail (Reuters)
~~~
WSJ now says that For Lehman, Liquidation Seems the Most Likely Scenario (WSJ.com)
First, we have the two major buyers unable to come up with a deal:
• Barclays Walks from Lehman Deal; Likelihood for Transaction Narrows (WSJ)
• Bank of America Said to Walk Away From Talks to Buy Lehman (Bloomberg)
• See also Hurricane Fuld Lashes NYC.
And in a surprising twist, BofA not only walked away from Lehman, they walked into the arms of Merrill Lynch: Bank of America, Merrill Lynch In Merger Talks. NYT Dealbook reports a possible $38 Billion deal, at $25-30 (Friday close $17.05).
BofA scorecard: First, they horrifically overpaid for Countrywide. Now they want Merrill. (Some people never learn). If they just wait a day, they could probably pick up Merrill for significantly less money, based on Lehman's likely loss. Its an all stock deal, but MER stock may fall more than BofA's.
On an unrelated note, AIG is planning a Major Restructuring, Sale of Aircraft-Leasing Business.
We are now on bankruptcy watch, with the midnight hour as the key line in the sand. The Wall Street open Monday in the event of a Lehman failure will be wild:
Wall Street Prepares for Potential Lehman Bankruptcy (Bloomberg)
"The fate of Lehman Brothers Holdings Inc.'s darkened early Sunday afternoon with Barclays PLC, the sole remaining bidder for the 158-year-old Wall Street firm, telling federal regulators that it is walking away from a transaction, people familiar with the matter say.
The situation was rapidly evolving, and it's possible Barclays or another bidder would emerge to save Lehman before markets opened Monday. But with the government balking at putting any taxpayer money at risk for Lehman, the likelihood of a transaction was dimming. That would leave an orderly liquidation as the most likely scenario, a dramatic outcome for a once-powerful firm."
And then there's this Likelihood for Transaction Narrows (WSJ)
The fate of Lehman Brothers Holdings Inc.'s darkened early Sunday afternoon after Barclays PLC, the sole remaining bidder for the 158-year-old Wall Street firm, told federal regulators that it is walking away from a transaction, people familiar with the matter say.
With Barclays ending talks and the government balking at putting any taxpayer money at risk for Lehman, the likelihood of a transaction was dimming. That would leave an orderly liquidation as the most likely scenario, a dramatic outcome for a once-powerful firm.
Lastly, we have the swaps and derivatives producing this statement on Lehman, holding a special Sunday session in anticipation of a Lehman bankruptcy filing:
"ISDA confirms a netting trading session will take place between 2 pm and 4 pm New York time for OTC derivatives. Product classes involved are credit, equity, rates, FX and commodity derivatives. The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy filing. Trades are contingent on a bankruptcy filing at or before 11:59 pm New York time, Sunday, September 14, 2008. If there is no filing, the trades cease to exist. These trades are subject to a protocol which is being distributed by ISDA (International Swaps and Derivatives Association). Traders should execute the protocol and return to ISDA.'' (Full statement here)
Tomorrow is going to be very, very interesting day . . .
Sunday, September 14, 2008 | 04:05 PM | Permalink
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» Stuff Goin On -- Wall Street -- On A Sunday from Seeing the Forest
Hey turn on CNBC. Yes, this is Sunday afternoon/evening. Stuff is happening. Lehman Brothers is probably filing for bankruptcy because the Fed is not bailing them out. This means the stock market will realize that the Fed is not going... [Read More]
Tracked on Sep 14, 2008 8:49:47 PM
Comments
The current Wall Street CEO's approached CFC, BSC, FNM, & FRE as "stand alone" issues and only gave the briefest of laughable jawboning lip-service to knock-on effects.
These are desperate, greedy, unprincipled people who haven't earned an ounce of our trust. Screw them all.
How does a rescue not tank the rescuers after the initial pop?
2009 is going to make 2008 look like Mary Poppins.
Posted by: Unsympathetic | Sep 14, 2008 4:14:43 PM
I'm ready for the rollout of FusionIQ v. 2.0.... could really need the help navigating the seas to come.....
Posted by: Chief Tomahawk | Sep 14, 2008 4:22:32 PM
Unsympathetic | Sep 14, 2008 4:14:43 PM
Unfortunately it's also going to screw a lot of people on Main Street who have mutual funds, IRA's, 401k's, not to mention the job losses on the street and downstream. You could be one of them. The day is not yet over.
Posted by: John(2) | Sep 14, 2008 4:25:48 PM
http://online.wsj.com/article/SB122142278543033525.html?mod=googlenews_wsj
Bank of America, Merrill Lynch In Merger Talks
By MATTHEW KARNITSCHNIG, SUSANNE CRAIG and DENNIS K. BERMAN
September 14, 2008 4:08 p.m.
Bank of America and Merrill Lynch & Co. Inc. are in merger discussions, according to people familiar with the matter.
The talks come amid a Wall Street scramble to sort out a potential liquidation of Lehman Brothers Holdings Inc.
Bank of America had considered buying Lehman, but when those talks failed to result in a deal, BofA turned its attention to Merrill, which is considered a better fit for the bank.
Much remains uncertain and conditions were fluid.
---------
Ah, just another...
Sunday Bloody Sunday
I cant believe the news today
Oh, I can't close my eyes and make it go away
How long...
How long must we sing this song?
How long? how long...
cause tonight...we can be as one
Tonight...
Posted by: Michael M | Sep 14, 2008 4:31:35 PM
Merrill gets a lifeboat lined up. Makes sense. After all if LM goes down they would be next. Read Roubini this morning it's exactly what he predicted, all the big brokerages and i banks would have to find partners.
Posted by: John(2) | Sep 14, 2008 4:31:52 PM
How does the market gestate this one? Is the shit going to hit the fan or the floor? I just don't know anymore after all the b.s. us shorts have been through. Some way some how this has got to be a positive for the market!!! Fuck you bulls!
Posted by: JustinTheSkeptic | Sep 14, 2008 4:34:44 PM
"Tomorrow is going to be very, very interesting day..."
"Bring it on!"
-G.W. Numbnuts
Posted by: brion | Sep 14, 2008 4:35:57 PM
I will keep my fingers crossed, but thank goodness for just a little bit of restraint from Bazooka Hank. A little facade of a free market is good every now and then.
Don't expect any restraint next year when Treasury Secretary Dick Fuld bails everybody else out if economic and legal geniuses McCain and Palin win in November.
Posted by: CNBC Sucks | Sep 14, 2008 4:40:09 PM
"Interesting?"
I guess it depends on how you feel about two freight trains, each carrying a hundred carloads of dynamite, slamming together at 100 mph on a high trestle, and tumbling in a flaming fireball into an LNG plant.
Oh wait, we've got circuit breakers to protect the "market." No worries!
Posted by: Jim Haygood | Sep 14, 2008 4:41:01 PM
So Lehman's estimate of their balance sheet doesn't make sense to Barclay's, B of A, JC Flowers, the Korean Development Bank, etc... but it does to Mr. Fuld. Is he still qualified to be called "The Smart Money?"
Posted by: VennData | Sep 14, 2008 4:42:23 PM
I love the smell of capitalism in the morning.
I wonder what shade of white Wagoner of GM and Mulally of Ford, Cerberus, Nardelli, Snow et al are right now.
Posted by: VennData | Sep 14, 2008 4:48:14 PM
Not to nit pick, but shouldn't the CNBC program go until midnight? That is the deadline afterall.
Posted by: Chief Tomahawk | Sep 14, 2008 4:51:48 PM
The negotiations were probably going really well...
...until Barclay's asked to see the books!
Posted by: Paul Jones | Sep 14, 2008 4:52:49 PM
I've just spoken to a couple of street people who are wired and while not in full Chicken little mode they are a bit ambivalent about Hank baby. All the efforts to contain the damage of the past year could be thrown away if this goes south big time tomorrow.
Posted by: John(2) | Sep 14, 2008 4:53:45 PM
With the PDCF wide open to Primary Dealers, Lehman is still kaput. It only goes to show what those of us in the deflationary camp have been saying for the past year or so - the problem is not liquidity, but solvency.
Interest rate adjustments cannot solve the problems of insolvency.
Posted by: Winston Munn | Sep 14, 2008 4:53:51 PM
Does anyone care to share educated guesses as to 1) what is the likely fallout for Wall Street tomorrow? and 2) what is the broader picture of damage that may be caused by a Lehman going bankrupt to 401Ks, smaller banks, insurers, etc.? I'm honestly interested and not all that well educated to understand what Monday may look like. Is it time to take advantage of being well-informed enough by reading this blog, and take a trip to the bank tomorrow morning before lines form? Or is that just crazy talk?
Posted by: BostonJoe | Sep 14, 2008 4:55:20 PM
I have a recurring nightmare. Picture the scene at the end of Planet of The Apes, where Charlton Heston gallops down a strange beach and comes upon the head of what he eventually recognizes as the Statue of Liberty. "We finally really did it. You maniacs! You blew it up!".
Except that in my dream, Lady Liberty is up to her chin in a sea of (hundred thousand?) dollar bills.
Posted by: pmorrisonfl | Sep 14, 2008 4:57:17 PM
I also have a question. Since the Fed appears unlikely to bail out Lehman's, what are the odds that they will try to calm the market by lowering rates?
Posted by: JL | Sep 14, 2008 5:00:57 PM
Ha just a little over 2 yrs ( when article was written ) and all the financial malfeasance from Wall St, The Fed, The Treasury and the Bush admin ( and what we get more of with McSame ) and this is closer to being true....
The case for a global currency
http://www.iht.com/articles/2006/08/03/opinion/edwade.php
FRIDAY, AUGUST 4, 2006
There is a rising tide of opposition around the world to America's unilateral assertion of its national interests. But few realize that for the United States to become a more responsible country, the world economy needs to move from the current U.S. dollar standard to a global currency.
U.S. dominance rests not only on military superiority and on the size and productivity of its economy, but also on the fact that most international transactions are denominated in U.S. dollars and more than 60 percent of world foreign exchange reserves are held in U.S.-denominated assets, like U.S. Treasury bills.
The problem for the rest of the world is that the U.S. dollar standard encourages the United States to be careless in its monetary and fiscal policies.
STAY TUNED because likely coming and sooner than most thought just 2 yrs ago !
So the big financial rat houses are banding together to better compete.
Posted by: km4 | Sep 14, 2008 5:05:33 PM
BostonJoe,
I certainly wouldn't spend time standing in line to withdraw cash from a bank. Bank failures aren't a likely response to a LEH bankruptcy. In fact, the BKX Banking index has held up rather well lately. It's just a few bad-actor banks that are in trouble. Behemoths such as Bank of America, JPM Morgan/Chase and some others will be preserved at all costs under the "too big to fail" doctrine. I keep some funds (not over $100K) at Chase, and don't lose any sleep over it.
The questions on my mind are: (1) whether the Federal Reserve will make an emergency rate cut; and (2) in the event of a stock market crashette, whether government authorities would buy index futures to stop it, or use their power to influence private-sector actors to do so.
Posted by: Jim Haygood | Sep 14, 2008 5:06:33 PM
BostonJoe | Sep 14, 2008 4:55:20 PM
Providing you have under a 100k in a deposit taking institution you're FDIC insured so no need to camp out on the pavement tonight. If you have a lot of your 401k/IRA in a money market fund it's advisable to spread it across a two or more funds. I've personally been fairly laid back about this whole mess since the middle of last year and have taken defensive measures but not retreated to a bunker. None of us can say how it's going to go tomorrow but this has the potential to be a watershed event. A lot of posters for some bizarre reason can't seem to wait for a meltdown but if it occurs it's going to inflict huge damage on domestic balance sheets as IRA's, 401k's etc go in the tank and hence on the wider US economy. Mr Paulson is playing with fire here because if this does turn into bloodbath tomorrow he's lost control of the situation and so far despite all the carping from second guessers he's basically stayed in control.
Posted by: John(2) | Sep 14, 2008 5:10:30 PM
Opening early on a Sunday so the banks and B/Ds can net derivitives trades does NOT inspire confidence in the general public. It makes me think they expect chaos if LEH files.
If LEH does file, I think there's a tiny chance a "market holiday" is declared and equities will not open for trading. Authorities will use it to buy time to try to arrange solutions for the "too big to fail" dominos (i.e., WM, MER, AIG, etc) that could be further impaired by a LEH bankruptcy.
Posted by: Groty | Sep 14, 2008 5:19:00 PM
So let me get this straight - BoA, which already has its hands full with Countrywide, Lasalle and U.S. Trust, is taking on another failing giant, Merrill, to save the financial system? Why should we expect this to work?
Posted by: Jeff M. | Sep 14, 2008 5:20:05 PM
Why would BofA buy MER for $25-30 a share, that is idiotic. They are going to pay a 50% premium to buy a toxic company? Then again BofA is run by idiots that can't get their website to transfer money between accounts in different states after ten years.
Why not wait until next week when MER is trading at $8 to buy them. Does anyone think that MER is any different from LEH?
Posted by: Peter | Sep 14, 2008 5:20:48 PM
And did you hear about the "severance packages" for the the CEOs of Fsnnie and Freddie? Over TEN MILLION DOLLARS EACH. Is this a great country or what?
Invest in yourself folks. Wall street won't help you. I would say government won't help you either but then (with this government) I'd be repeating myself.
Posted by: AGG | Sep 14, 2008 5:21:30 PM
