Lehman the next Bear?

[GRG55]

Re: Lehman the next Bear?

Can U spell "moral hazard"?...

"...If the regulators refuse to offer a sweetheart deal to a potential buyer, it will change the trading dynamic around troubled financial institutions, creating uncertainty about what was becoming a safe one-way bet..."

Apparently the Chinese haven't completely lost their appetite for buying bits of US financials...

From the FT:

BofA, JC Flowers, CIC planning joint Lehman Brothers bid

By Henny Sender in Hong Kong and Francesco Guerrera and Peter Thal Larsen in London
Published: September 12 2008 14:45 | Last updated: September 12 2008 15:46


Bank of America, JC Flowers & Co, the financial investor, and China Investment Co., the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman Brothers...

A forced sale of Lehman Brothers at a fire sale price appears to be the most likely option in the wake of the massive drop in Lehman’s share price over the last few days, people familiar with the matter add. “The only question now is what price,” says one person who has been in discussions with Lehman over possible asset sales as well as with regulators.

While the details of any proposal haven’t yet been fully worked out, a bid from the BofA-led group may involve losses for holders of the debt as well as shareholders....

Regulators will most probably remain on the sidelines....

“Bear Stearns happened so quickly,” says one former Fed official. “At the time, there was no infrastructure to keep Bear alive. Now, there is an infrastructure to prevent a disorderly liquidation with the Fed willing to lend against good collateral.”

Moreover, while Bear Stearns was a big player in the credit default swap market, ran an important prime brokerage business and had a big role in the clearing system, Lehman poses less of a threat to financial stability, many of these people believe. ”Lehman may be the poster child for enough is enough,” says a senior executive at one major private equity firm that has been in talks with Lehman regarding possible asset sales....

Mr Flowers, a former Goldman Sachs partner who is close to BofA, currently manages about $3.2 bn of CIC’s money in a fund dedicated to taking stakes in financial institutions...

The CIC fund complements a $7bn fund that Mr Flowers has just raised from a wider group of investors. Mr Flowers has structured that fund so that he can exercise control rather than take minority stakes as private equity firms have done in the past. CIC may invest additional sums in Lehman alongside Mr Flowers and Bank of America...

There remains a slight chance that Lehman might be forced into a pre-packaged bankruptcy, some of these people believe....

Lehman’s plight is sure to raise questions both about regulatory oversight and the consequences of mark to market accounting. Some bankers and private equity tycoons including David Bonderman, co-founder of TPG and a minority investor in troubled Washington Mutual, believe that in times of stress, such accounting treatment can lead to a death spiral. That’s because the sale of a small portion of assets at distressed prices can force a firm to mark down the value of all its holdings, leading to rising funding costs—the lifeblood of a securities firm ---and plunging share prices.

Even before Lehman’s fate has been sealed, there has been quiet finger pointing, with the Securities & Exchange Commission likely to come under increasing criticism. That is because the SEC is supposed to monitor broker-dealers to ensure that they hold enough capital to support illiquid holdings such as Lehman’s real estate investments. But Lehman held these investments outside that entity, and thus avoided heavy capital charges to which regulators seemingly turned a blind eye.

If the regulators refuse to offer a sweetheart deal to a potential buyer, it will change the trading dynamic around troubled financial institutions, creating uncertainty about what was becoming a safe one-way bet. So far, shareholders have been almost completely wiped out while debt holders have been protected.

[Supercilious]

Re: Lehman the next Bear?

The Chinese need Lehman because CIC can become a prime dealer ... They want Nomura status , Plus let's not forget Baikal.

The Chinese liquidity + Baikal would be a serious and potential profitable competition for Turquoise ... The game is on

(This merger wil not be payed by fed. Probably it has already been paid by various pension funds and wiped out Mom's and Pop's e-trade investors )

[GRG55]

Re: Lehman the next Bear?

Can U spell "moral hazard"?

"...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, which also could include Barclays PLC, 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...

...A number of prospective buyers would likely "come out of the woodwork," if the U.S. government were to offer some form of protection against future losses, said one person monitoring the process..."

We've had the Greenspan Put and the Bernanke Put. What should we call this? The Paulson Put...backed by the full faith and credit of the United States Government...er...taxpayers? Yikes...:eek:

[Supercilious]

Re: Lehman the next Bear?

Can U spell "moral hazard"

What are you talking about? There is no such thing as moral hazard ...

http://www.marketsmediaonline.com/ne...&wPI=2&cN=1692

Starting next month, Mark Schonfeld, director of the New York regional office of the Securities and Exchange Commission, will be working for the defense.

Schonfeld is credited with taking on the accounting practices of insurance companies, the mutual fund trading practices of companies including Bank of America, Bear Stearns, Alliance Capital Management, CIBC and Citigroup, an international trading ring stealing information from Merrill Lynch, Business Week and a sitting grand jury and "squawk box" cases against brokers at Merrill Lynch, Lehman Brothers and Citigroup for leaking institutional order information to frontrunners.

In a move officially announced late Thursday, Schonfeld will switch sides to represent many of his former legal adversaries as a partner at Gibson, Dunn & Crutcher, a Los Angeles-based law firm with 950 attorneys located throughout the U.S. and overseas.

Starting in October, Schonfeld will be co-head of the firm's Securities Enforcement Defense practice and a member of the White Collar Defense, Investigations and Crisis Management practices.

According to the firm, Gibson, Dunn & Crutcher's attorney roster includes more than 75 lawyers with “extensive prosecutorial, government and regulatory backgrounds.”

Included in this roster are a host of former colleagues at the SEC, including Amy Goodman, who from 1975 to 1986 was assistant director of the division of corporate finance; Brian Lane, whose 16 years at the agency culminated ended in 1996 to 1999, when he headed the division; James Maloney, a former special counsel to the division's office of mergers and acquisitions; and John Sture, formerly assistant director of the enforcement division.

During his tenure as head of the SEC's New York office, he is credited with overseeing nearly 400 enforcement attorneys, accountants and compliance examiners, recovering more than $3 billion for investors and effected overhauls in corporate governance and compliance programs at major financial institutions.

"Mark has been a creative, aggressive and tireless advocate for investors,” said Linda Chatman Thomsen, director of the SEC's division of enforcement. “Under his leadership, the New York Regional Office has brought hundreds of cases, many of them addressing the most urgent securities issues of the time.”

“Not only is Mark not afraid of the tough issues, he thrives on them,” she added.

This beats even the Onion....

[GRG55]

Re: Lehman the next Bear?

What are you talking about? There is no such thing as moral hazard ...

http://www.marketsmediaonline.com/ne...&wPI=2&cN=1692


This beats even the Onion....

"...During his tenure as head of the SEC's New York office, he is credited with overseeing nearly 400 enforcement attorneys, accountants and compliance examiners, recovering more than $3 billion for investors and effected overhauls in corporate governance and compliance programs at major financial institutions.

"Mark has been a creative, aggressive and tireless advocate for investors,” said Linda Chatman Thomsen, director of the SEC's division of enforcement. “Under his leadership, the New York Regional Office has brought hundreds of cases, many of them addressing the most urgent securities issues of the time.”

“Not only is Mark not afraid of the tough issues, he thrives on them,” she added..."

All I can say is if this was the top talent and it still resulted in the feckless SEC that we have today, imagine what we can look forward to now that he, and others like him, are jumping ship...

[GRG55]

NY Fed Hosts Late Friday Meeting...

New York Fed Holds
Emergency Meeting
On Lehman's Future

By DAMIAN PALETTA, SUSANNE CRAIG and DEBORAH SOLOMON
September 12, 2008 10:59 p.m.

The Federal Reserve Bank of New York held an emergency meeting Friday night with top Wall Street executives to discuss the future of venerable firm Lehman Brothers Holdings Inc. and the parlous state of U.S. financial markets.

The meeting, which began at 6 p.m., was called by the New York Fed in an attempt to find a solution to the problems plaguing Lehman. The group, which consisted of the heads of most major financial institutions, is expected to meet throughout the weekend to see if it can agree on some way to rescue the ailing firm, according to a person familiar with the matter.

Treasury Secretary Henry Paulson has made it clear to participants that no government bailout should be expected, this person said. Representatives of the banks plan to continue meeting to try and forestall a collapse of Lehman, which could hurt their firms and Wall Street in general.

In attendance from were government officials, including New York Fed President Timothy Geithner, Mr. Paulson and Securities and Exchange Commission Chairman Christopher Cox. The Wall Street executives included Morgan Stanley Chief Executive John Mack, Merrill Lynch Chief Executive John Thain, J.P. Morgan Chase CEO Jamie Dimon, Goldman Sachs Group CEO Lloyd Blankfein, Citigroup Inc. head Vikram Pandit and representatives from the Royal Bank of Scotland Group PLC and Bank of New York Mellon Corp., among others.

The meeting appeared similar to one a decade ago when the New York Fed pulled together top Wall Street executives to prevent the collapse of hedge fund Long-Term Capital Management.

One big issue: Most of the firms at the meeting have themselves been hit with big losses and may not have the excess capital to step in.

"Senior representatives of major financial institutions met at the Federal Reserve Bank of New York Friday evening to discuss recent market conditions," a spokesman for the New York Fed said. The SEC issued a similar statement.

The future of Lehman could open a new chapter in the government's handling of the financial crisis, which is sweeping up an increasing number of firms, including American International Group Inc. and Washington Mutual Inc.

If the meeting helps engineer a rescue for the firm that doesn't involve government funding, it would represent a new approach for the Bush administration and Mr. Paulson, who has in the past six months helped intervene to break up Bear Stearns Cos. and organize a government takeover of mortgage giants Fannie Mae and Freddie Mac.

As of late Friday, Mr. Paulson appeared unwilling to support a government-led bailout of Lehman, people familiar with the situation say. Mr. Paulson and Federal Reserve Chairman Ben Bernanke don't see a need to structure a Bear-like rescue. In part, that's because Lehman and other investment banks already have access to Fed borrowing facilities created after Bear's collapse. As of Wednesday, no investment banks had tapped the facilities since July.

Lehman's troubles have also been well-known for a while, giving market participants "time to prepare," according to those familiar with the government's thinking. The government, which took over Freddie Mac and Fannie Mae last weekend, could face a public backlash if it continues to prop up troubled financial institutions.

Because the 158-year-old Lehman does business with several other Wall Street firms, the damage from any failure there could have widespread effects. It was precisely that concern that prompted the U.S. in March to orchestrate the sale of Bear Stearns Cos. to J.P. Morgan and limit the bank's exposure to bad assets on Bear's books.

As of late Friday, Bank of America Corp. was seen as the likeliest buyer, but Lehman and its investment bankers also were meeting with other potential bidders, including Barclays PLC and HSBC PLC, both of the U.K. Other parties were looking only at pieces of Lehman, with Goldman Sachs Group Inc. interested in some of the securities firm's huge real-estate portfolio.

But suitors like Bank of America, worried about the risk of buying an ailing financial institution like Lehman, want the government to step in with a package similar to what was offered to J.P. Morgan when it bought Bear. Then, the federal government agreed to absorb as much as $29 billion in losses. In seeking a Lehman deal, Bank of America Chairman and Chief Executive Kenneth D. Lewis is likely to face a tough sell to investors if he doesn't secure some federal government backing.

The government's rescues of Bear, Fannie and Freddie have already been criticized from politicians on both sides of the aisle. Mr. Paulson is expected to face tough inquiries on Tuesday when he appears before the Senate Banking Committee to answer questions about the takeover of Fannie and Freddie.

While talks continued Friday, Lehman was working on dual tracks. On the one hand, executives were negotiating to find a buyer for the company. At the same time, the company was moving ahead on other business, with bids for a stake in the pre-announced auction for its investment management unit due Friday night. The firm is also still planning to release its fiscal third-quarter earnings on Thursday.

[Supercilious]

Re: NY Fed Hosts Late Friday Meeting...

In attendance from were government officials, including New York Fed President Timothy Geithner, Mr. Paulson and Securities and Exchange Commission Chairman Christopher Cox. The Wall Street executives included Morgan Stanley Chief Executive John Mack, Merrill Lynch Chief Executive John Thain, J.P. Morgan Chase CEO Jamie Dimon, Goldman Sachs Group CEO Lloyd Blankfein, Citigroup Inc. head Vikram Pandit and representatives from the Royal Bank of Scotland Group PLC and Bank of New York Mellon Corp., among others.

The question is what why Mellon Bank was present there? A correct answer to that question would reveal what will happen next to Lehman ;)

If we knew who were all the "others" the answer would be more than obvious.

[GRG55]

Re: NY Fed Hosts Late Friday Meeting...

The question is what why Mellon Bank was present there? A correct answer to that question would reveal what will happen next to Lehman ;)

If we knew who were all the "others" the answer would be more than obvious.

When they're passing the hat amongst hobos, it probably helps to have a larger group...

[Honzajs119]

Re: Lehman the next Bear?

What if...

http://www.rgemonitor.com/roubini-mo...banking_system

[Jim Nickerson]

Re: Lehman the next Bear?

What if...

http://www.rgemonitor.com/roubini-mo...banking_system

This is the link above available without registering:

If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system

Nouriel Roubini | Sep 13, 2008

It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.

Let me elaborate in much detail on these issues…

Emphasis JN

I can tell you why a "massive systemic meltdown of the financial system" will not occur Monday: I have a decent position in SKF, and there is no way that I am going to see it explode in value come Monday. On the other hand, hopefully I will see it increase some in value over the next few weeks.