Lehman Bailout This Weekend?
Rumors circulating amongst several hedgies are that KKR and Blackstone are interesting in taking a bid at Lehman. Note that Blackstone is run by Peter Peterson and Steve Schwartzman, former Lehman Brothers guys.
The scuttlebutt is that the private equity boys are looking for a Fed backstop, and want a Bear Stearns-like deal, with Fed/Treasury taking on $20-40 billion dollars in risk. So goes the circulating rumors amongst the Long/Short crowd.
The WSJ noted:
"Given the firm's deep financial troubles, a deal of any sort is far from certain, according to people familiar with the situation. In addition, prospective buyers would likely want the U.S. government to help shield them from future losses from any such transaction, these people said, as happened in March, when Bear Stearns Cos. was forced into a deal to be acquired by J.P. Morgan Chase & Co. In that deal, the federal government agreed to absorb as much as $29 billion in potential losses."
Other rumors today included Bank of America making a run at Lehman brothers. Recall their CEO, Ken Lewis, said back in October 2007: "I've had all of the fun I can stand in investment banking at the moment." Is he ready for more fun? I guess if you define LEH at $4 as fun, he might be tempted back to the iBank pool.
Here's a more neutered version of the story, via Washington Post:
"The Federal Reserve and Treasury are actively helping Lehman Brothers put itself up for sale, and officials are hoping a deal will be in place this weekend before Asian markets open on Monday, according to sources familiar with the matter.
The government is looking for an agreement that would not involve public money. One scenario that is emerging includes multiple suitors acquiring different pieces of the venerable investment bank, which has suffered staggering losses from its business in real estate and mortgages.
The situation was still fluid tonight, and there was no guarantee what form an agreement would take, or even that it would be in place by Monday, the sources said on condition of anonymity because they had not been authorized to speak."
We will find out soon enough.
If its Sunday, it must be Bailout.
>
Sources:
Lehman Races to Find a Buyer
Bank of America Is Said To Be in Preliminary Talks; U.S. Plays Matchmaking Role
MATTHEW KARNITSCHNIG, CARRICK MOLLENKAMP, SUSANNE CRAIG and ANNELENA LOBB
WSJ, September 12, 2008
http://online.wsj.com/article/SB122116292232524671.html
I've had all the fun I can stand in investment banking, says the boss of Bank of America
Stephen Foley
The Independent, 19 October 2007
http://www.independent.co.uk/news/business/news/ive-had-all-the-fun-i-can-stand-in-investment-banking-says-the-boss-of-bank-of-america-397294.html
U.S. Government Helping to Arrange Sale of Lehman Brothers
David Cho and Heather Landy
Washington Post, September 11, 2008; 7:39 PM
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/11/AR2008091102580.html
Thursday, September 11, 2008 | 10:49 PM | Permalink
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I recall something on CNBC yesterday to the effect that because LEH has certain valuable assets like its real estate holdings plus access to the Fed window, this situation is unlike Bear and no bailout is required. Which is exactly why you, BR, are correct and there will probably be a bailout this weekend.
I wouldn't worry about it, though. The first national-level American politician in my 30 something years of paying attention actually publicly admitted to the possibility of war with Russia. With all due respect, BR, all these moral hazard and big picture economic concerns of yours pale in comparison to the "9/11 everyday" future we might see if Sarah Palin becomes President.
Posted by: CNBC Sucks | Sep 11, 2008 11:05:13 PM
"If its Sunday, it must be bailout"
Barry, like I said before - you slay me.
Posted by: wayne | Sep 11, 2008 11:08:35 PM
Yup. That's what I want my tax money spent on.
Seriously, though. Is there a point where the bailouts themselves become too much of a threat to the Fed's credibility, not to mention its books? I mean, 2 weekends in a row. And its not like MER and MS might not be in the same boat in 6 months. Is there a point where the market sees one bailout after another as a sign that the market is in waaaaayyy too much trouble to be saved? Or is it simply a matter of Wall Street being happy that taxpayer money is being handed to them?
Just wondering.
Posted by: Lysander | Sep 11, 2008 11:12:32 PM
I'd also add that maybe the bailout possibility is now priced in? Bear Sterns seemed to come out of nowhere. It was 30 dollars on Friday, 2 on Monday. LEH is already worthless. And we just had 2 bailouts and plenty of rumors about this one.
Also, wouldn't Hank and Ben fear a bailout wont sooth the market? What if there's another sell off following a one day rally? Wouldn't they at least want to wait a while so soon after Fanny/Fredie? Or can't LEH wait that long?
Posted by: Lysander | Sep 11, 2008 11:23:23 PM
Breaking News: Lehman To Be Acquired by Tooth Fairy
The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share.
In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehman’s level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbell’s up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbell’s assets other than the Level III capital. If Tinkerbell defaults, Lehman’s successor entity will stick its hand down the crocodile’s throat and attempt to get it to regurgitate. The firm’s historical value-at-risk analysis shows that sticking your hand down a crocodile’s throat is completely safe.
Treasury Secretary Hank Paulson issued a statement: “I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.”
Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, “Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately?” The SEC is reportedly planning to set up re-education camps for short-sellers.
Posted by: graffiti grammarian | Sep 11, 2008 11:30:07 PM
With all this uncertainty - I want to know why the DOW continues to be range bound between 11200 and 11800.
Are the s&p e-mini future buying monkeys at it again?
Why won't the broader market fall? Who is buying?
Posted by: Mr. Beach | Sep 11, 2008 11:32:24 PM
Nicely done, graffiti grammarian!
Posted by: pmorrisonfl | Sep 11, 2008 11:39:31 PM
R U KIDDING ME! that tooth fairy story is so old! is that an indication of delayed market reaction! ???
Posted by: karen | Sep 11, 2008 11:44:44 PM
In the land of corporation bankruptcy and CEO keepers no matter what ...
"Buyer must assume all liabilities of bank and subsidiaries and indemnify current owners and directors against any and all future claims"
Who is the buyer?
Posted by: Greg0658 | Sep 11, 2008 11:45:41 PM
Tbe Wall Street Boys see they have a real sucker running the fed. Threaten a domino effect on CDS and the public purse opens.
Imagine where Volcker would have told them to put their CDS.
Posted by: Mike in NOLa | Sep 11, 2008 11:46:45 PM
With LEH I think the fed is going to say: "Enough". Le(h)t the fire sale begin.
Posted by: johnnyvee | Sep 12, 2008 12:05:32 AM
Mike, I think the days when Volcker had the ability/strength to tell them was over with Comrade Bernanke.
Posted by: karen | Sep 12, 2008 12:06:38 AM
And don't forget that Friday is Bank Failure Friday.
Posted by: Carmen | Sep 12, 2008 12:09:46 AM
Whatever the bailout is doesn't change any of the fundamentals in the market right now.
Just try to go get a loan.
Posted by: Owner Earnings | Sep 12, 2008 12:14:05 AM
How much is LEH into the Fed at the discount window? Why would they backstop all the toxic crap that remains on the balance sheet when they have already loaned aginst this and maybe other toxic crap? I say that Paulson/Bernancke are up against it here and the rest of the investment banking world is watching. What about
WaMu? This could be a wild weekend.
CNBC Sucks- At least Sarah is not familiar with the Bush docrine. Spending too much time working on the energy component to national security and memorizing the "I will not blink" meme.
Posted by: larster | Sep 12, 2008 12:16:21 AM
I suppose some of today's late buying was triggered by rumors of a rate cut and/or of a Lehman buyout. The Fed is in a box; if there is no deal or rate cut by Monday, I bet we see a major selloff.
Even with a deal nothing really changes except that unwinding is gradual instead of sudden.
You can see the nervousness in the SKF's. The premiums on SKF's early this afternoon was enormous.
Posted by: Mike in NOLa | Sep 12, 2008 12:49:08 AM
boys if the fed allows its lender of last resort facilit to be nakedly packaged as part of a lehmans bailout you are all up the proverbial creek without a paddle
good luck
pcm
Posted by: peter from oz | Sep 12, 2008 12:49:20 AM
"The government is looking for an agreement that would not involve public money."
Why not let Lehman die?
Would it be the end of the world?
Posted by: Francois | Sep 12, 2008 1:15:40 AM
Mike in NOLa hits the nail on the head.
Posted by: tomd | Sep 12, 2008 1:38:43 AM
"Would it be the end of the world?"
Of course, they will try to convince Bernanke that it will be. I wonder how many people on Wall Street are employed to do opposition research on him and the other Fed members. He's written papers describing what he thinks the Fed did wrong in the Great Depression and is determined to avoid those mistakes. Those trying to sell him on bailouts have probably been studying his writings and speeches to learn what buttons to push in negotiations.
Posted by: Mike in NOLa | Sep 12, 2008 1:40:07 AM
On the gravestone of The United States of America will apear the words,
BEFORE ASIAN MARKETS OPEN MONDAY
Anyway, the LEH deal must be done this weekend rather than next because Paulson is not strong enough to do a double header with WM.
Posted by: esb | Sep 12, 2008 1:51:19 AM
Whilst an evaluation of Investment banks or banks assets is feasible but far from accurate, the greatest difficulties lie in their contra accounts ie the derivatives and their conterparties.
Purchaser(s)will need deep inspiration and deeper pockets
Posted by: Philippe | Sep 12, 2008 2:49:01 AM
Since I (we) taxpayer's are going to own a piece of many financial institutions before this is all over, I think that we should expect treatment and consideration should we apply for a loan or have an interest in other financial transactions. All in agreement say aye...
Posted by: Jojo | Sep 12, 2008 3:50:02 AM
Mr. Beach,
I'm with you. I am absolutely amazed that we are at the 11,500 level. My gut tells me it is being heavily managed to prevent an uncontrollable melt-down of ALL financial instruments.
The seven or eight thousand range feels about right to me considering the kind of problems we have had and continue to have. Can you believe, we have not hit one circuit breaker in who knows how long.
Have we triggered a single circuit breaker this year? If we haven't you don't need any more evidence of a "heavily-managed market". I don't know how they keep it above 10K, but they (somebody or most likely a group of somebodies) is doing it successfully I might add.
Also, you can now easily detect a pattern where troubled institutions are literally lining up for their day/s of reckoning with the market. And they are only getting a few days before they must pop out the other side in some shape or form; because by then there is already another institution entering the meat grinder on the front end. Sequential..
It's not unlike the National Geographic clip you've seen where the leopard is seen taking down weakened prey and the rest of the herd speeds away.
Posted by: BG | Sep 12, 2008 6:32:58 AM
So with all the bailouts... when will people realize the hit to the dollar this will incur and when will the dollar resume it's decline?
2 months?
Posted by: Patrick | Sep 12, 2008 6:47:10 AM
