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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 | Comments (31) | TrackBack (0)
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Comments

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